• Capital raised through the primary market has been showing a declining trend for the last 4 years. In 1994-95, Rs. 27,632 crore was raised through 1,692 public and rights issues. In 1995-96 the amount raised declined and the number of issues increased by 24.7 per cent and 2 per cent to Rs. 20,803.7 crore and 1,725 respectively. In 1996-97, there was a further decline in amount raised to Rs. 14,276 crore (i.e. by 31.4 per cent) as also in the number of issues to 882 (i.e. by 48.9 per cent).
• The trend also continued in 1997-98. There was a steeper decline both in the number of issues and the amount raised during the year. The total amount raised was Rs. 4,570 crore approximately through only 111 issues registering a sharp fall of 68 per cent and 87 per cent respectively as compared to the previous year.
• Various factors which adversely affected the primary market included sluggish economic growth, deceleration in industrial growth particularly capital goods industries, lack of demand for investment goods because of cut in growth of capital expenditure of public sector. Besides, the corporates also diverted resourcing of funds through private placements and financial institutions. There was also an increase in corporate restructuring and consolidation by various business groups, partly through mergers, acquisitions of divisions of companies or product lines and partly through takeovers. The latter activity which is regulated by the SEBI has been discussed in this Report.
• An important trend that emerged during the year under review was the rise in the share of rights issues to more than three times than that in 1996-97. Large issues increased in terms of both number and amount during the year and banks and financial institutions raised 49 per cent of total capital raised in the market in1997-98. This also reduced the reliance of corporates on directly accessing the primary market for raising capital. The trend in investor response showed investor preference for firms with established track record. There was, however, a decline in fund raising activities by the non banking finance companies. The over pricing of issues following the introduction of free pricing and decline in the prices of those issues in the market, had an adverse effect on the market for subscriptions. The extent of oversubscription of issues made during the year was of significantly less magnitude compared to previous year indicating a move towards optimal pricing of issues. Strict entry point norms introduced by the SEBI since 1995-96 and which were continuously refined, helped ensure improvement in quality of paper entering the market.

In year 1997-98, 111 issues opened for raising Rs. 4,569.95 crore while in 1996-97 there were 882 issues for raising Rs. 14,275.98 crore. Thus, there has been a decline of 87.41 per cent in the number of issues and 68.01 per cent in the amount raised in 1997-98 as compared to the previous year. However there is a noticeable decline in finance companies approaching the capital markets in a big way in 1997-98 as compared to the previous year. Though there was all round fall in absolute level of capital raised in 1997-98, banks/FIs, cement, and chemicals, finance, food processing and transport recorded a steep fall from Rs.10,087.7crore in 1996-97 to Rs.2,682.04 crore in 1997-98. In 1997-98, an important feature was that the capital raised showed high degree of concentration in certain sectors viz. banks and financial institutions, metal, telecommunications, cement and chemicals which together account for nearly 67.47 per cent of the total capital raised. During the year, for the first time, a municipal corporation accessed the securities market for raising bonds of Rs. 100 crore after obtaining credit rating from one of the recognised credit rating agencies.

Trends in size and composition of issues

There were 62 public issues and 49 rights issues in 1997-98 as against 751and 131 respectively in the previous year. The public issues accounted for 55.86 per cent of the total number of issues and 62.63 per cent of the total amount of capital raised in 1997-98 compared to 85.15 per cent of the total number of issues and 80.95 per cent of the total amount of capital raised in 1996-97. The rights issues accounted for 44.14 per cent of the total number of issues and 37.37 per cent of the total capital raised in 1997-98 while in 1996-97 these issues accounted for only 14.85 per cent of the total number of issues and 19.05 per cent of the total amount of capital raised.

Month-wise details of capital raised during the period April 1996 to March 1997 and April 997 to March 1998 are furnished in Table.II.2.

Table II.2 : Number of issues and amount raised

 
Pub = Public and Rig = Rights
Source : SEBI

Continuing with the trend in the previous year, in 1997-98 also, there was a substantial increase in the capital raised through large issues of Rs. 100 crore and above. In 1997-98, there were 12 such large issues (10 issues in the range of Rs.100 crore and above amounting to Rs. 1934.56 crore and 2 issues in the range of Rs. 500 crore and above amounting to Rs. 1549.29 crore). These 12 issues accounted for 76.23 per cent of the total capital raised during the year under review through the primary market. In 1996-97, there were 19 such large issues (9 issues of Rs.100 crore each amounting to Rs.1,450.74 crore and 10 issues in the range of Rs.500 crore and above amounting to Rs. 7,013.78 crore). These 19 large issues contributed 59.29 per cent in the total capital raised. The average size of the issues (including public and rights) increased in 1997-98 to Rs. 41.17 crore as against Rs.16.19 crore during the financial year 1996-97. During 1997-98 the average size of issues excluding large issues was Rs. 10.97 crore. The average size of issues which opened during the previous year excluding the 19 large issues was Rs. 6.73 crore only.

Initial public offers (IPOs)

The number of IPOs by unlisted companies declined in 1997-98 to 52 out of total 111 issues amounting to Rs. 1,047.52 crore as against 715 IPOs out of 882 amounting to Rs. 5950.27 crore floated during the previous year. However, in 1997-98, IPOs share in total issues was at 46.85 per cent as compared to 81.07 per cent in 1996-97. The decline in the share of IPOs can be partly attributed to the decline in industrial activity in the country and partly due to strict entry point norms which prevented green field projects without track record from accessing the market.

Issues with appraised projects

In 1997-98, a number of companies came to the market with appraised projects. There were 77 appraised issues accounting for 69.37 per cent of the total number of issues mobilising Rs. 3,195.75 crore or 69.93 per cent of the total amount raised, as compared to 644 issues accounting for 73.02 per cent of the total number of issues for an amount of Rs.11,916.97 crore or 83.48 per cent of the total amount raised in the previous year.

Region-wise distribution of capital issued

Region wise distribution of issues indicates that there were 46 issues for raising Rs. 2,391.09 crore in the western region followed by 26 issues for raising Rs.1,164.21 crore in the eastern region, 21 issues for an amount of Rs. 712.95 crore in the southern region and 18 issues for an amount of Rs. 301.70 crore in the northern region. (Table II.3)

Table II.3: Region-wise capital raised

 
Source: SEBI

There has been a decline in the total number of issues and amount of capital raised in the northern, western and southern regions as compared to the previous years. The decrease in the number of issues and the related amount was 87.22 per cent and 73.55 per cent in respect of western region, whereas the Northern region registered a fall of 91.86 per cent and 91.08 per cent. Table II.3 gives details of capital issues for two years. Though average size of issue increased in all the four regions, the eastern region and southern regions have shown marked increase.

Instrument-wise distribution of primary issues

During 1997-98, 64 equity issues opened at par raising Rs. 271.36 crore accounting for 56.1 per cent of the total issues and 5.94 per cent of the capital raised. In 1996-97, 697 equity issues were made at par raising Rs. 3,432.63 crore accounting for 78.6 per cent of the total issues and 24.0 per cent of the capital raised. Thus, there was a decline in the number and relative proportion of equity issues made at par in 1997-98 as compared to the previous year.

In all, 33 premium equity issues were made raising Rs. 1,610.27 crore accounting for 28.95 per cent of the total issues and 35.24 per cent of the total capital raised. In the previous year, there were 148 premium issues accounting for 16.69 per cent of the total number of issues raising Rs.4,411.79 crore forming 30.90 per cent of the total amount raised. Though in absolute terms the number of equity issues at premium and amount raised through them declined in 1997-98, in relative terms, the share of equity issues at premium as a per centage of the total number of issues and amount raised was higher in 1997-98 than that in 1996-97. Thus, there was a favourable investor response to equity issues of quality.

In 1997-98 there were 4 bond issues which raised Rs. 1,550 crore and accounted for 33.92 per cent of the capital raised as against 10 bond issues with Rs. 5,400 crore accounting for 37.83 per cent of the total capital raised in the previous year. Instrument-wise distribution of capital raised is presented in Table II.4 .

Table II.4 : Instrument- wise Distribution of Capital Raised

 
*Number counted on the basis of instruments i.e. if a company has issued more than one instruments, these have been counted separately.

Source: SEBI

Firm allotment to institutional investors

Table II.5 gives details of firm allotments/reservations made to mutual funds, financial institutions, banks, NRIs/OCBs, FIIs, employees and others.

Table II.5 : Category-wise reservation of the public issues launched

 
Source : SEBI

Of the total amount of capital raised during the year 1997-98, 11.24 per cent was reserved for firm allotment to the above mentioned categories. The promoters participation in 37 issues in 1997-98 was Rs.133.8 crore as against Rs.1,192.48 crore in 1996-97. The financial institutions and banks shared 42.02 per cent in 1997-98, while FIIs, Mutual Funds and NRIs accounted for a smaller share.

Distribution of primary issues by industry

Table II.6 gives the industry-wise distribution of capital raised during 1997-98, the top 6 industries viz banking/FIs, metal, textile, Misc., chemical and engineering, accounted for 89.37 per cent of the funds raised in the market. banking and financial institutions raised Rs. 2,241.82 crore which is 49.06 per cent of the total capital raised in 1997-98.In the previous year banking and financial institutions raised Rs. 5,752 crore which accounted 40.29 per cent of the capital raised. Thus, the trend of banking and financial institutions accessing the markets was further accentuated in the year under review. On the other hand, there was marked decline in the amount raised by finance companies during the year under review as compared to the previous year. 22 finance companies raised only Rs 73.71 crore in 1997-98 which accounted for 1.61 per cent of the capital raised, whereas in 1996-97, 283 issues were made by finance companies to raise Rs. 1,393.92 crore amounting to 9.76 per cent of the total capital raised.

Table II.6 : Capital raised : Industry-wise

 
Source : SEBI

Subscription in primary issues

During 1997-98, 5 issues for an amount of Rs. 257.90 crore were initially under-subscribed which were subsequently subscribed. Out of these, there were 3 public issues (of which 2 were underwritten and the unsubscribed portion was brought in by the underwriters, one was under subscribed as per the 3-day report but subscribed as per the 78 day report), and 2 rights issues (both were not underwritten and unsubscribed portion was brought in by promoters and others). During 1996 - 97, 57 issues amounting to Rs. 1266.90 crore were undersubcribed. Of the 57 undersubscribed issues - 47 were public issues (38 par issues, and 9 premium issues,) and 10 were rights issues ( 1 par issue, 6 premium issues, 3 issues offering Bonds).

Table II.7 : Subscription details

 
* includes 4 issues having a second instrument - Three issues offered Equity and FCDs and one issue offered Equity and CCPs.

Source: SEBI

Action taken against companies with regard to deficiencies related to public issues

The SEBI during the year 1997-98, took punitive measures against six companies which made public stock rights issues. These companies were found to have made misleading disclosures in the Offer Documents. These measures which the SEBI took included deferment of issue, order for refund of monies collected and order for option to be given to the applicants by withdrawal. Besides, in several cases show-cause notices were issued and the proceedings are still on.

Underwriting

It was observed that the number of issues underwritten declined during 1997-98 in comparison with 1996-97, indicating lack of underwriting interest. Out of 62 public issues which opened during 1997- 98, 11 issues amounting to Rs. 449.11 crore were underwritten and 51 issues amounting to Rs. 2,412.84 crore were not underwritten. Whereas during 1996-97 out of the 751 public issues 91 issues were underwritten amounting to Rs.1,981.11 crore while 660 issues amounting to Rs. 9,575.66 crore were not underwritten.