Study of Underwriting of Public Issue by Merchant Bank (Recovered)

Study of underwriting of public issue by merchant bank

PROJECT REPORT ON:

STUDY OF UNDE!"T"N# OF $U%&"' "SSUE %Y (E')*NT %*N+

SUBMITTED BY:

(EET $*N+*, ')"TOD* T-Y- %*N+"N# . "NSU*N'E /SE(ESTE 01 SUBMITTED TO:

UN"0ES"TY OF (U(%*" PROJECT GUIDE:

(rs-*,ES)" SON" ACADEMIC YEAR:

2345647

4 Thakur 'ollege of Science and 'ommerce


DECLARATIONS

" MEET PANKAJ CHITRODA from T)*+U 'O&&E#E OF S'"EN'E . T.Y. BANKING BANKIN G &INSURAN &INS URANCE CE (SEME (S EMESTER STER V) V )8 'O((E'E8 'O((E'E8 student of T.Y. STUD UDY Y OF UNDE UNDER RWRITI RITING NG OF hereby submit my pro9ect report ST PUBLIC ISSUE BY MERCHANT BANK .

" also declare that this pro9ect which is the partial fulfillment of the re:uirement for for the the degr degree ee of T-Y-%-'o %-'om m /%an /%anki king ng . "nsu "nsura ranc nce1 e1 of the the (U(% (U(%*" *" UN"0ES"TY is the result of my own efforts with the help of e;perts-

D*TE< D*TE< $&*'E<


(EET $*N+*, $*N+*, ')"TOD*


CERTIFICATE

This This is to cert certif ify y that that the the pro9 pro9ec ectt enti entitl tled ed is succ succes essf sful ullly done done by MEET PANKAJ PANKAJ CHITRODA duri during ng Thir Third d Year F"FT F"FT) ) SE(S SE(SET ETE E of B.COM (BANKING (BANKING & INSURANCE) INSURANCE) under the Uni=ersity of (umbai through the

Thakur 'ollage of Science and 'ommerce8 +andi=ali8 (umbai6>33434-

'o6ordinator

Date<

$lace<

$ro9ect #uide

$rincipal

'omplete "nternal E;aminer

? Thakur 'ollege of Science and 'ommerce

E;ternal E;aminer


ACKNOWLEDGEMENT

"t gi=es me immense pleasure in presenting the pro9ect on Study of Und!"!#$#n% ' P*#+ I,, - M!+/n$ B/n0. Firstly8 " take the opportunity in thanking our =ery dear C.T. CHAKRABORTY CHAKRABORTY then " would like to thank the almighty and my principal D!. C.T.

parents without whose continuous blessings8 " would not ha=e been able to complete this pro9ect" would like to thank my $ro9ect #uide(rs-*,ES)" SON" and our 'o-Ordinator$rof Nira=--#OD* Nira=--#OD* for supporting me . pro=iding me with the material and knowledge to make this pro9ect a success- " con=ey my deep appreciation to him for sparing his =aluable time and efforts8 so as to make me capable of presenting this pro9ect" am thankful to our college for all the possible assistance and support8 specially our library by making a=ailable the re:uired books and internet room which ha=e pro=ed useful to me in successful completing my pro9ect" hope that " ha=e succeeded in presenting this pro9ect to the best of my abilities-

> Thakur 'ollege of Science and 'ommerce


INDE1

CHAPTER NO.

TOPIC

PAGE NO.

2

INTRODUCTION

345

6

REVIEW OF LITERATURE

27426

8

RESEARCH METHODOLOGY

2842

8.2 8.6 8.8 8.9 8.

OBJECTIVE OF STUDY SCOPE OF STUDY SIGNIFICANCE OF STUDY DATA COLLECTION LIMITATION LIMITATION OF STUDY ST UDY

28 28 28 29 2

9

OVERVIEW OF MERCHANT BANK

23497



DATA ANALYSIS & FINDING

9249

3

OBSERVATION & SUGGESTION

93

;

CONCLUSION< BIBLIOGRAPHY

9;495

@ Thakur 'ollege of Science and 'ommerce


CHAPTER4 I

INTRODUCTION

The financial system of a country is a comple; and closely integrated set of sub systems of financi financial al instit institutio utions8 ns8 market markets8 s8 instru instrumen ments ts and financ financial ial ser=ice ser=icess which which facilit facilitate ate the transfer transfer and allocation of funds efficiently and effecti=ely- The "ndian financial system consists of both organiAed /formal1 /formal1 and unorganiAed unorganiAed /informal1 /informal1 segmentssegments- The formal financial financial system comes under the pur=iew pur=iew of (inistry of Finance8 eser=e %ank of "ndia8 Securities and E;change %oard of "ndia and other regulatory bodiesFinancial institutions are the intermediaries who facilitate in mobiliAing sa=ings and allocation of funds in an efficient manner and include banking and non banking institutions- Financial markets pro=ide the transmission mechanism whereby =arious participantsB demands and re:uirements interact to set a price for financial claims- The main financial markets in "ndia include the market for short term securities s ecurities /money market1 and for long term securities /capital market1- Financial markets are also classified as primary and secondary markets- !hile the primary market deals in new issue of securities8 securitie s8 the secondary market is meant for trading in e;isting securities /stock e;change and o=er the counter market1- $rimary e:uity market includes public issues8 right issues8 offer for shares and pri=ate placement of sharesFinancial instruments represent the claims against a person or an institution for the payment at a future date8 a sum of money andCor a periodic payment in the form of interest or di=idend- Financial securities are classified classified as primary /direct1 /direct1 and secondary /indirect1 /indirect1 securities- The primary securities are issued by the ultimate borrower of funds to the ultimate in=estor as shares and debentures while secondary securities are issued by the financial intermediaries to the ultimate sa=ers /bank deposits8 insurance policies8 mutual funds etc-1Financi Financial al ser=ices ser=ices are the ser=ices ser=ices which which facilit facilitate ate financ financial ial transac transactio tions ns of indi=i indi=idua duals ls and institutional in=estors resulting in the resource allocation acti=ities through time- These ser=ices bridge the gap betwee between n lack of knowle knowledge dge on the part part of in=est in=estors ors and increas increasing ing sophis sophistica ticatio tion n of financ financial ial instrum instruments ents and marketsmarkets- Since Since the liberal liberaliAat iAation ion and deregu deregulati lation on of "ndian "ndian econom economy y8 the financ financial ial ser=ices ha=e found more scope of growth ser=ing the in=estors and corporates in a big way- The "ndian th

economy8 as a matter of fact8 has e;perienced the last decade of 23 century as the decade of financial ser=ices- There has been a ma9or shift from bank finance to capital market for meeting the financial re:uirements re:uirements of the corporate sector during this periodperiod- The emergence emergence of different financial institutions institutions and regulatory agencies has transformed the financial ser=ice sector from being a conser=ati=e industry to



a =ery dynamic one- The financial ser=ice today is emerging as a strong industry world o=er and is termed as a SunriseB industryindustryOne of the oldest and specialiAed financial ser=ices in the "ndian capital market has been merchant banking ser=ice- The merchant bankers ha=e not only helped in promoting trade tr ade and commerce between nations8 but ha=e also ser=ed the financial needs of the +ings8 (onarchs and State #o=ernments engaged in the continental wars-

O!#%#n ' M!+/n$ B/n0#n% The origin of merchant banking is traceable to the de=elopments of foreign trade and finance th

during the 4? century- During this period8 a few firms engaged in coastal trade and finance spread throughout the European continent were engaged both in commercial acti=ities and banking acti=itiesThese firms also acted as the bankers to the +ings of the European States8 financial coastal trade among Euro Europe pean an nati nation ons8 s8 bore bore e;ch e;chan ange ge risk risk and and secu securit rity y risk risk in finan financin cing g the the +ing +ings8 s8 (ona (onarch rchss and and #o=ernments engaged in continental wars- The main centre for world trade and finance at that time was *msterdam8 where the Dutch traders relied upon the e;pertise of merchant bankers /then known as commission agents1 for financing of tradeDuring the se=enteenth and eighteenth century8 the "talian grain merchants also started merchant banking acti=ities in "taly and France- "t comprised of merchant bankers who intermediated in financing the transactions of the traders and their own trade also- The "talian merchant bankers introduced into England not only the bill of e;change8 but also all the institutions and techni:ues connected with the organiAed money market- Thus8 the modern merchant banking started from &ondon where the merchants started to finance the foreign trade through acceptance of bill of e;change- The industrial re=olution in England ga=e further boost to the merchant banking due to the growth of the home industry-



(/) M/n#n% M/n#n% ' M!+/n$ M!+/n$ B/n0#n% The term merchant banking is easier to understand than to define because one can only make an attempt to identify the ser=ices s er=ices and acti=ities coming within its pur=iew- 0ery commonly8 commonly8 the merchant 4

banking has been defined as to what a merchant banker does- *s stated by Sir Edward eid8 the term merchant bank is sometimes applied to banks who are not merchants8 sometimes to merchants who are not 2

banks8 and sometimes to houses who are neither merchants nor banks banks - *ccording to (ichael T- Skully8 (erchant banking within the same country may co=er wide range of financial acti=ities and in process ?

include a number of different financial institutions - ,ohn Dick was of the =iew that due to the dynamic nature of functions of merchant banks8 the meaning and definition of merchant banking has been changing)e has stated8 of its =ery nature as merchant banking is always e=ol=ing the definitions supplied today >

would perhaps not be the same as they were three or four years ago - )ans6 $eter %auer has suggested that merchant bank should contain some ele=en characteristics< high portion of decision6makers as a percentage of total staff8 :uick decision process8 high density of information8 intense intense contact with the en=ironment8 loose organiAational structure8 concentration of short and medium Gterm engagements8 emphasis on fee and commission income8 inno=ati=e instead of repetiti=e operation8 sophistical ser=ices on @

national and international le=el8 low rate of profit distribution and high li:uidity ratio "n the "ndian conte;t8 merchant bank has been defined by 00- #angadhar #angadhar and (- Sunder as a ser=ice acti=ity- *ccordingly8 *ccordingly8 banking banking departments rendering non6fund based ser=ices se r=ices of arranging funds rather 5

than pro=iding them to the needing industrial concerns is called merchant banking - *s per the Securities and E;change %oard of "ndia /(erchant %anker1 egulation8 4HH28 a merchant banker has been defined as  *ny person who is engaged in the business of issue management either by making arrangements regarding selling8 buying or subscribing to securities as manager8 consultant8 ad=iser or rendering corporate ad=isory ser=ices in relation to such issue management-

I Thakur 'ollege of Science and 'ommerce


()M!+/n$ B/n0#n% #n Ind#/ *gency houses were the traditional name gi=en to the merchant trading in "ndia and Far EastDuring 4I4?8 trade and commerce de=eloped in "ndia through the agency agenc y housesB based based in &ondon- ,ohn $almer . 'o- was the leading agency house during this period and it operated the banking acti=ities from 'alcutta- These agency houses had employed their growing capital in trade and commerceThomas SkinnerBs annual directories &ondon %anksB /4II31 traces the origin and growth of merchant banking acti=ities in "ndia and Far East- *n *nglo6*merican *nglo6*merican merchant bank /%aring %rothers1 mo=ed into the financing of "ndia and Far Eastern trade during 4I?3- !hen the First !orld !ar !ar broke out8 there were as many as twenty one financial firms with considerable commitment in 'entral Europe and at least eighteen firms with ma9or interest in "ndia and Far East-

2.9

M/n#n% O' IPO

"nitial public offering /"$O1 or ,$ock market launch is a type of public offering in which shares of a company usually are sold to institutional in=estors that in turn8 sell to the general public8 on a securities e;chan e;c hange8 ge8 for the fir first st tim timee- Th Throu rough gh thi thiss pro process cess88 a pri= pri=atel ately y hel held d com compan panytr ytransf ansform ormss int into o a pub public lic company- "nitial public offerings are mostly used by companies to raise the e;pansion of capital8 possibly to mon moneti etiAe Ae the in= in=estm estments ents of early pri pri=ate =ate in= in=esto estors8 rs8 and to bec become ome pu publi blicly cly trad traded ed ent enterp erprise risess- * company selling shares is ne=er re:uired to repay the capital to its public in=estors- *fter the "$O8 when shares trade freely in the open market8 money passes between public in=estors- *lthough "$O offers many ad=antages8 there are also significant disad=antages8 chief among these are the costs associated with the process and the re:uirement to disclose certain information that could pro=e helpful to competitors- The "$O process is collo:uially known as goingpublicDetails of the proposed offering offering are disclo disclosed sed to poten potential tial purchasers in the form of a lengthy document know kn own n as a prospectus prospectus- (o (ost st co comp mpan anie iess un unde dert rtak akee an "$ "$O O wi with th th thee as assi sist stan ance ce of an in=estment banking firm banking firm acting in the capacity of an underwriter - Underwriters pro=ide se=eral ser=ices8 including help with correctly assessing the =alue of shares /share price1 and establishing establishing a publi publicc market for shares /initial sale1- *lternati=e methods such as the dutch auction ha=e auction ha=e also been e;plorede;plored- "n terms of siAe and public participation8 the most notable e;ample of this method is the "$O-

H Thakur 'ollege of Science and 'ommerce


CHAPTER4 II REVIEW OF LITERATURE * number of studies ha=e been conducted from time to time to understand the different aspects relating to primary market and merchant banking acti=ities in "ndia- )owe=er8 most of them ha=e focused upon the primary market in "ndia only- esearch in the area of merchant banking in "ndia and its role in the primary market is =ery limited and that too is descripti=e in nature and deals with procedural aspects8 organiAation and management and marketing aspects of merchant bankers- * re=iew of important studies is presented below<

6.2L#$!/$! S!=4

conduc ucte ted d resea research rch on merch merchan antt bank bankss in "ndi "ndiaa with with the the purp purpos osee toan toanaly alyse se thei their r V!>//4HH31 cond organiAation structure and management pattern and to assess their suitability for medium and small siAe corpor corporate ate and non corpor corporate ate enterp enterprise risess- The The suitab suitability ility of mercha merchant nt bankin banking g ser=ice ser=icess in reduci reducing ng in=estorsB risk and corporate capital structure has also been e;amined- The information was collected from a sample of ?2 merchant bankers through :uestionnaire and the study co=ered the period 4H7I to 4HI>The researcher found a number of weaknesses in the e;isting di=isional formB organiAation and management pattern of merchant banks in "ndia- This included deep concentration of decision making power8 lack of co6ordination8 lack la ck of appropriate skill8 inade:uate training programme8 strict str ict dependence on the bureaucratic framework8 blocked communication channels and misdirected accountabilityThe study re=ealed that H3 percent of the resources of all merchant banks were de=oted only to the management of public issues- * negligible performance of merchant banks was found in other areas of ser=ices including loan syndication8 merger and amalgamation8 inter corporate in=estments and corporate counselling counselling-- Further8 Further8 merchant banking banking acti=ities acti=ities were found to ha=e remained concentrated concentrated with only a few top merchant bankers8 while stock brokers managed =ery small siAed issues co=ering 9ust 4@J of the total amount of public issues* good public response was found to the issues managed by category " merchant bankers including merchant bankers of public sector banks8 whereas the category "" merchant bankers which included pri=ate firms had the public response of second order-



The researcher highlighted the merchant banksB contribution in causing risk reduction both to in=estors /throu /through gh portfo portfolio lio managem management ent11 as well well as the indust industry ry /throu /through gh pro9ect pro9ect counse counselin ling g and corpor corporate ate counseling1- Empirical results also highlighted that corporate enterprises which sought merchant bankersB assistance were financially sounder and less prone to sickness as compared to those not assisted by the merchant banks2

M!$M!$- /4HH?1 in his paper e;amined the cost of raising capital from the publicissues floated during

4HH26H?- During 4HH26H?8 an amount of s- >577-7> crore was raised through @4> public issues- The estimated e;penses on these issues were s- >7? crore- *nalysis of @35 public issues showed that issue e;penditure e;penditure as percentage percentage of net public offer was 43-43J 43-43J and the proportion proportion of issue e;penses declined with the increase in offer siAe- The study found that smaller pro9ects tend to spend a higher proportion proportion as issue e;penditure compared to the larger ones- The researcher also compared the cost of raising capital of issues through the OT' /o=er the counter1 route and regular stock e;change option and found that the cost of raising capital through OT' route was lower than the issues that opted for regular stock e;change routeThe study pointed out that no uniform format e;isted for reporting the issue e;penditure in the prospectus- The researcher has suggested that the total issue e;penditure as percentage to the total issue amount be reported prominently in the prospectus and abridged prospectus cum application form?

S/ /4HH@1 conducted an empirical study on the data set of 23@5 "ndian "$Os listedon the %SE from

,anuary 4HH4 to (ay 4HH@ with the ob9ecti=e to e;amine the under pricing of "$Os and to establish the empirical regularities about "ndiaBs "$O market- )e e;amined si; factors underlying under pricing8 namely asymmetric information between firms and in=estors8 fi;ing the offer price too early8 the interest rate float8 loss of li:uidity on the amount paid at issue date /li:uidity premium18 building loyal shareholders and merchant bankers rewarding fa=oured clients as an incenti=e to under priceEmpirical study found that the a=erage price on first listing day was 43@-5J abo=e the offer siAe8 a=erage delay between issue dates and listing day was 44 weeks

and weekly weekly e;cess return return on market market inde; /%SE /%SE Sense; Sense;11 was ?-IJ?-IJ- The The study study furthe furtherr found found that that correlation between the =olume of "$Os under pricing and the return on %SE Sense; was positi=e8 under pricing among the smaller issues was high8 a=erage long run trading fre:uency fre :uency of "$O was lower than *B group companies and return on "$Os during the first 233 trading days was more than market return>

S!#=/,$/=/ /4HH@1 in his paper highlighted the need for efficient marketing of publicissues because of the

transformatio transformation n of new issue market from sellersB market market to buyer buyer dominated dominated market as the geographical geographical and demogr demograph aphical ical range range of in=est in=estors ors has widene widenedd- *ccor *ccordin ding g to him8 him8 the process process of public public issue issue marketing marketing starts with the selection selection of the issue by the merchant bankerbanker- Then the merchant merchant banker plays 44 Thakur 'ollege of Science and 'ommerce


the role of a guide for the appointment of underwriters8 brokers and an e;pert ad=ertising agency- The researcher researcher has listed the current current practices in public issue marketing which include include the application application of data base marketing research8 direct approach to in=estors / like insurance8 UT" 18 seeking ser=ices of marketing e;perts as issue specialists8 branding the issues like mutual funds8 and effecti=e ad=ertising through e;tensi=e and intensi=e use of media- The author concluded that the future dimensions of public issue marketing will include the after sale ser=ice to in=estors and gi=ing instant ser=ices of selling@

A%%/! A%%/!"/* "/* /4HH@1 traced the origin8 growth and history of merchant banking in "ndiaand abroad- The

ob9ect ob9ecti=es i=es of the study study includ included ed the analys analysis is of organiA organiAatio ational nal struct structure8 ure8 managem management ent patter pattern n and performance e=aluation of SE%" registered category " merchant bankers during the period 4HIH6 H3 to 4HH?6H>The study found that merchant banking institutions lack skill de=elopment programmes for training the staff8 up to date information and more concentration of decision making power- Despite this8 the study highlighted the important role of merchant bankers in the growth of capital market and mobiliAation of resources from public through issue management acti=ities- The author recommended for stopping the turno=er of personnel in merchant banking di=isions of nationaliAed banks due to transfers8 who ha=e up to date market information and adopt professional attitude for pro=iding ser=ices as merchant bankers-



CHAPTER 4 III RESEARCH METHODOLOGY esearch methodology is a way to sol=e the research problem systematically- "t includes the methods re:uired for systematic analysis and logical interpretation of empirical e=idence- So8 it co=ers the scopeCpopulation of the study8 sample siAe8 selection of sample8 source of data collection8 tools and techni:ues used for the analysis8 interpretation and presentation of data and limitations of study-

8.2O?+$#=, ' $ S$d4- To e;amine e;amine the role of merchant merchant banking banking in promot promoting ing capital capital market in "ndia"ndia2- To study the the rules and regulati regulations ons of SE%" SE%" for merchant merchant bankers as issue issue managersmanagers?- To e=aluate e=aluate the the performan performance ce of the merchant merchant bankersbankers>- To study the marketing marketing aspects aspects of the the merchant merchant bankers bankers relating relating to the the issue@- To study the effecti= effecti=ene eness ss of pricin pricing g of the issues issuesBB /as determin determined ed by issuing issuing company company and the merchant banker15- To make appropriat appropriatee recommendation recommendationss to merchant bankers bankers for impro=ing impro=ing their their performance performance

8.6S+@ ' $ S$d"n order to e;amine the role of merchant bankers in the management of public issues in "ndia8 a period of twel=e years from 4HH76HI to 233I63H has been taken- During this period8 a total of 5I@ public issues /54I e:uity issues and 57 debt issues1 and ??3 rights issues ha=e been floated- *ll these ha=e been considered for e=aluation of performance of merchant bankers- Similarly8 a number of merchant bankers stood registered with SE%" at different points of time during the period under re=iew- *ll these merchant bankers form the uni=erse of the present study- (a9or thrust of the study has been on the performance e=aluation of merchant bankers in the management of public issues-

8.8

S#%n#'#+/n+ O' S$d(erchant %ankers play a =ery important role in the "$O process of E(E#E and also ha=e a role

in $ost listing phase- Their responsibilities are higher on the E(E#E platform as in addition to the con=entional role of managing and underwriting the "$O8 they are also responsible for ensuring market making for a period of three years from the "$O-

4? Thakur 'ollege of Science and 'ommerce


2.

Ed+/$#n% $ /@@*#+/n$ +>@/nTo inform and educate the applicant about capital market rules . regulations8 the "$O process and post listing re:uirements6.

D d#*#%n+ d#*#%n+  & DRHP P!@/!/$#n The merchant banker would be closely associated in preparing the new applicantKs prospectus and other related listing documents- The (erchant %anker shall conduct a due diligence on the applicant and pro=ide due diligence certificate cert ificate as per Form * of Schedule 0" of the "'D including additional confirmations as pro=ided in Form ) of Schedule 0" along with the offer document to the e;changeThe other certifications as mentioned in "'D8 Schedule 0" will be pro=ided8 if applicable-

8.

D#,@*/- ' ''! d+>n$ n ",#$. The merchant banker shall display the offer document on its website after the final appro=al is obtained and the )$ is filed with o' and SE%"-

9.

M/!0$ M/0#n% /!!/n%>n$ The (erchant banker shall ensure compulsory market making through the stock brokers of S(E e;change in the manner specified by the %oard in chapter L%8 for a minimum period of three years from the date of listing of specified securities on S(E e;change-

.

Und!"!#$#n% /!!/n%>n$ The merchant banker shall ensure that the issue is 433J underwritten and 4@J of the underwriting should be by the merchant banker in own books-

3.

A!!/n%>n$ "#$ n>#n/$d #n=,$!, "n terms of pro=isions of 'hapert L% of the "'D8 merchant bankers could enter into arrangements with nominated in=estors /$E funds . M"%s as defined therein1 for facilitating market making and underwriting- The merchant banker shall disclose their arrangements with Nominated in=estors to the e;change in the Final Offer document .

8.9

D/$/ C**+$#n The present study is based on secondary data- Data ha=e been collected from the offer documentsC

ed )erring $rospectuses of the issuer companies8 %SE official Directories8 SE%" *nnual eports8 SE%" %ulletins8 )andbook of Statistics on the "ndian Securities (arket of SE%"8 *nnual eports of %"8 eports on 'urrency . Finance8 %" )andbook of Statistics on "ndian economy8 $rime Directories8 Economic Sur=ey and NSEBs "ndian Securities markets6 * e=iew etc* good amount of data has also been collected from different 9ournals like 'apital (arket e=iew8 SE%" %ulletin8 Dalal Street8 'hartered Financial *nalyst8 *nalyst8 $ortfolio $ortfolio Organiser Organiser88 Economic Economic . $olitical $olitical !eekly8 Economic Sur=ey8 'hartered *ccountant and Finance "ndia etc- 0arious financial newspapers8 press notes8 publications of =arious merchant bankers ha=e also been consulted- %esides this8 the websites 4> Thakur 'ollege of Science and 'ommerce


of SE%"8 NSE8 %SE8 %" and a number of other agencies has been searched for getting the latest data and information related to the study-

8. L#>#$/$#n O' S$dThe followings are the limitations of the present study< 4- The study is based on seconda secondary ry data- So8 So8 the limitations limitations of secondary secondary data data may also creep creep in and ha=e an impact on the present study also2- The study co=ers the the public issues issues of e:uity e:uity and debt debt in "ndia- $ri=ate $ri=ate $lacement $lacement and and Euro issues issues ha=e not been co=ered by b y the study?- *ll the figures figures ha=e ha=e been taken taken at current current prices- The The impact impact of price le=el le=el accounting accounting has has not been been taken care of-

4@ Thakur 'ollege of Science and 'ommerce


CHAPTER4 IV

O=!=#" O' M!+/n$ B/n0 The focus of this chapter is on the role played by merchant bankers in the primary capital market in "ndia both in public issues and right issues- "t is mandatory under SE%" rules that e=ery issuing company must appoint one or more SE%" registered merchant bankers as lead manager/s1 for the management of issue- (erchant bankers play an important role as one of the intermediaries in the primary capital in "ndia- They help companies in the total management of issue of securities- Therefore8 they are called "ssue (anagersB /&ead (anagers1- They undertake all acti=ities related to capital issues and play different roles as lead managers8 co6managers8 underwriters8 consultants and ad=isors to the issue- They also perform the duties as portfolio managers"n the case of book building process8 the issuer appoints SE%" registered merchant bankers as book runner/s1 and the lead merchant banker acts as the lead book runner r unner and other eligible merchant bankers appointed by the issuer and lead managers are termed as co6book runnersrunners- The book runners and other intermediaries associated with the book building process maintain records of the book building process but primary responsibility of maintaining proper books books is that of lead book runnerrunner*s an ad=isor to the issue8 merchant bankers ad=ise the company on the matters relating to the :uantum of the issue8 timing of the issue8 pricing of the issue8 structuring of capital and debt8 marketing strategy of the issue and the selection of other intermediaries to assist in the process of raising fundsegulation 4H of SE%" /(erchant %ankers1 egulations8 4HH28 as modified from time to time8 places restrictions restrict ions on the appointment of lead managers- The number of lead merchant bankers may not e;ceed the following <6 S# ' P*#+ #,,, (R,. In +!!,)

N. ' M!+/n$ /n0!,

&ess than s- @3 crores

Two



s @3 crore but less than s- 433 crore

Three

s 433 crore but less than s 233 crore

Four

s 233 crore but less than s- >33 crore

Fi=e

s >33 crores and abo=e

Fi=e or more as may be agreed by the SE%"

)owe=er8 the limit to the ma;imum number of lead managers to be appointed in a single issue was omitted through amendment in this regulation as on *pril 4H8 2335Further8 clause 23 /41 of the abo=e egulations re:uires that where there are more than one lead managersC lead merchant bankers to the issue8 the responsibility of each of such merchant banker shall be clearly demarcated and a statement clearly defining such responsibilities shall be furnished to SE%" at least one month before the opening of the issue for subscription- So8 it is in the interest of the issuing company to obtain from the lead merchant banker a statement of allocation of dutiesC responsibilities which shall be discharged by different merchant bankersThis chapter e=aluates the merchant bankers on the basis of their acti=ities performed in managing capital issues as book runner lead managersC lead managers8 co6lead managers and ad=isors to the issues in public issues as well as rights issues separatel y- The The performance of merchant bankers has been e=aluated in terms of number of issues handled8 amount raised8 percentage of amount raised through indi=idual merchant bankers to the total amount in a particular year o=er the period of study-

9.2M/n/%>n$ ' P*#+ #,,, 'onse:uent upon (S Shoes scandal and '% fiasco8 SE%" took a number of measures in 4HH76HI relating to primary market with the ob9ecti=e of safeguarding and stimulating in=estorsB interest in capital issues- SE%" /(erchant %ankers1 egulations8 4HH2 was amended on December H8 4HH7 to streamline and strengthen the role of SE%" to impart more transparency to merchant banking acti=ities in "ndia- The amended egulations abolished different categories of merchant bankers to one and segregated fund based and fee based acti=ities of merchant bankers- (erchant bankers were prohibited from carrying on any fund based acti=ity8 such as acceptance of deposits8 leasing and discounting of bills- * number of stringent entry barriers were imposed by SE%" to punish fly6by6 night operators in the primary pri mary capital market- *s a result r esult of the this8 there was a sharp decline in the number number of different categories of merchant bankers registered 47 Thakur 'ollege of Science and 'ommerce


with SE%" and in the number of public issues since 4HH76HI- The number of merchant bankers registered with SE%" during the period under re=iew has been shown in table >-4

N>! ' M!+/n$ B/n0!, R%#,$!d "#$ SEBI Y/!,

N>!

4HH7 G HI

I32

4HHI G HH

>4@

4HHH633

4I5

2333634

2??

2334632

4>@

233263?

42>

233?63>

42?

233>63@

42I

233@635

4?3

2335637

4@2

233763I

4@@

233I63H

4?7

S!+: 6 SE%" *nnual eports8 4HH76HI to 233I63H-

4I Thakur 'ollege of Science and 'ommerce


For the purpose of analysis and e=aluation of performance of merchant banks in public issues and right right issues8 issues8 the mercha merchant nt banks banks which which acted acted as lead manager/s manager/s11 ha=e ha=e been been consid considered ered-- The The lead managerC%&( is the manager to the issue8 who is responsible for furnishing Due Diligence 'ertificateB to SE%" in accordance with SE%" /(erchant %ankers1 egulations84HH2 and also performs mainly pre issue obligations as lead manager*nalysis of data has re=ealed that generally a single merchant banker has been appointed as lead manager manager to the issue- "n case of multiple multiple merchant banks in a single issue8 one of the merchant merchant bankers has acted as lead managerC%&( to the issue- )owe=er8 in some large siAed issues8 more than one merchant bankers ha=e been appointed as lead managers who ha=e been 9ointly made responsible for furnishing due diligence certificate to SE%"- They also performed pre issue obligations 9ointly- "n order to calculate the number and amount of issues managed by indi=idual merchant banks8 the amount of issues ha=ing multiple lead managers were apportioned e:ually to all lead managers and the number of that particular issue was assigned to the first lead manager in the list of such issues-

9.2.2 P*#+ I,,, /nd N>! ' M!+/n$ B/n0, In=*=d The number of public issues floated by 9oint stock companies together with amount raised and the number of merchant banks in=ol=ed in the management of public issues for the period from 4HH76HI to 233I63H has been presented in the table >-2* glance at the table >-2 shows that a total of 5I@ public issues ha=e been floated by companies which mobiliAed funds to the tune of s-48H38@4@-4H crore- The largest number of 42> public issues were floated in the year 2333634 followed by 432 issues in 233@635 and H4 issues during 233763I- "t has been re=ealed in the table that primary capital market remained subdued during the year 23346328 233263? and 233I63H with respect to both number and amount of public issues- Year 233763I saw ma;imum amount of funds mobilised at s- @?824H crore followed by s2@8@25->4 crore raised in 233>63@- The minimum amount of funds raised was in 4HH76HI8 when "ndian companies could raise s- ?354-22 crore only-

4H Thakur 'ollege of Science and 'ommerce


M!+/n$ B/n0, In=*=d #n P*#+ I,,, F*/$d - J#n$ S$+0 C>@/n#,

M!+/n$ B/n0, In=*=d Y/!,

T&$/*

T&$/*

A=!/%

I,,,

A>&n$

I,,

A, L/d

A, C&4 L/d

T&$/*

F*/$d

(R,. C!&!)

S#

M/n/%!,

M/n/%!,

M!+/n$

(R,.

BRLM

C&4 M/n/%!,

B/n0,

M/n/%!,

In=*=d

C!!)

Ad=#,!,

4HH76HI

52

?8354-22

>H-?7

>4

2?

5>

4HHI6HH

?2

78H43-7>

2>7-24

4>

2I

>2

4HHH633

5@

7857?-4>

44I-3>

24

?7

@I

2333634

42>

58522-H3

@?->4

?>

2H

5?

2334632

4H

58>22-@7

??I-33

5

4I

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233263?

4>

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5

4I

2>

233?63>

?@

2284>>-@7

5?2-73

4@

44

25

233>63@

?>

2@8@25->4

7@3-77

23

23

>3

233@635

432

2? 2?857@-73

2?2-44

?H

2

>4

2335637

I@

2>8HH?-?7

2H>-3>

?7

H

>5

233763I

H4

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@I>-I2

?7

>

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233I63H

22

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4I

I

25

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3:

2<57<2.25

866.89

6

67;

4

S!+: 6 'ompiled from offer documents8 SE%" website and $rime Directories ofrele=ant years-

*fter the introduction of SE%" /(erchant /(erc hant %ankers1 *mendments egulations8 4HH78 the number of merchant banks has declined and only the :ualified and professional bodies ha=e remained in the fieldThis is e=ident from the table as well- "n the initial four years period of the study8 the number of merchant banks in=ol=ed in primary capital market acti=ities was higher than the number8 although a lthough the resources mobiliAation was much higher in the latter year 23 Thakur 'ollege of Science and 'ommerce


9.2M!+/n$ B/n0, /, L/d M/n/%!, $ P*#+ I,,, ' E#$9.6.2 P*#+ E#$- I,,, M/n/% /%>n$ - Ind#/n /nd F!#%n M!+/n$ B/n0, Total Total merchant banks in=ol=ed in the management management of public issues of e:uity and deferred deferred e:uity e:uity has been classified into "ndian and foreign merchant banks- Table >-?8 'hart >-4 and >-2 present the year wise number of issues and the amount of e:uity issues handled by "ndian merchant banks and foreign merchant banks operating in "ndia- *s re=ealed by the table8 out of 54I e:uity issues floated during the period under re=iew8 as many as @>> were handled by "ndian merchant banks while foreign merchant banks were the lead managers to 72 e:uity issues- )owe=er8 @>> issuer mobiliAed an aggregate amount of s- 7I8I>3-5? crore /@2-3IJ1 crore through "ndian merchant banks and the amount of e:uity issues managed by foreign merchant banks were of s- 728@>H-73 crore />7-H2J1- * glance at the a=erage issue siAe of both categories of merchant banks depicts the higher a=erage issue siAe in case of foreign merchant banks in all years e;cept 4HH76HI- "t shows the in=ol=ement of foreign merchant banks in the management of comparati=ely large siAed issues- The aggregate a=erage issue siAe of foreign merchant banks was 7HI-77 crore while it was only 4>@-4H crore in case of "ndian merchant banks-



P*#+ E#$- I,, M/n/%>n$ - Ind#/n /ndF!#%n M!+/n$ B/n0,

( Rs. in Crores)

Indian Merchant Banks Year

Foreign Merchant Banks

No. of Amount

Average

No. of Amount Average

No. of

Amount

Average

Issues

Amount

Issues

Issues

Rs .

Rs.

Rs .

Rs.

Rs .

1997-98

53

1122.03

20

03

21.17

40 4 07.82

02

20.39

46

105

1954.41

09

42.48

05

1930.71

10

18.36

05

24 2 47.98

828.71

01

49.60

23

165.74

01

8588.84

24

373.40

06

10532.28 438.84

93

05

13135.22 141.24

72

09

11261.73 156.41

77

13

21

27,004.56 350.71

1826.34

55

29 2975.25

54.1

55.3

115

24 2483.76

21.6

834.02

06

1082

209.97

06

1038.68

1538 1538.6 .699

29

17821

2179 2179.8 .855

29

21431.56

739.02

1171. 171.16 16

102

23675.7

232.11

1056 1056.2 .288

85

24993.37

294.03

25,214.44 1939.57

90

52,219

580.11

21

2034

22.91

1020 020.84 .84

55 553.05

834.02

180.33

209.97

173.11

9232 9232.1 .166

614.51

1089 10899. 9.33

1054 10540. 0.55

1373 13731. 1.66 (54.94)

13

(51.71) 2008-09

113.4 13.433

(44.52)

(45.06) 2007-08

504.02

(50.85)

(55.48) 2006-07

96 96.2

(51.80)

(49.15) 2005-06

22

19.52

(20.20)

(48.20) 2004-05

48.1

(77.08)

(79.8)

2003-04

1132

(22.27)

(22.92) 2002-03

58

(34.31)

(77.73) 2001-02

3.32

(19.08)

(65.69) 2000-01

9. 9.97 (0.9)

(80.92) 1999-00

Amount R s.

(99.10) 1998-99

Total

(48.29)

86.87

(89.80) 22 Thakur 'ollege of Science and 'ommerce

-

207.66 (10.20)

207.66

96.86


Total

544

!!4".#$

%45.%&

)5'."!*

'

'54&.

&!.

#%!

%(5%($&".$4

)4.&'*

N$: 6 Figures in parentheses show percentage of total amount mobilised throughpublic issuesS!+: 6'ompiled from offer documents of 'ompanies8 SE%" !ebsite and $rime Directories of

$ercentage share of foreign and "ndian merchant banks in the management of public issue of e:uity and year wise amount managed has has also been shown in the following charts-

2? Thakur 'ollege of Science and 'ommerce

'44.&


Further8 the "ndian merchant banks ha=e the significant higher proportion of total e:uity amount managed form 4HH76HI to 233263? with the e;ception of 23346328 when one foreign merchant bank was able to manage a single issue of s- I?>-32 crore- From the year 233?63> onward8 both types of merchant banks were able to manage almost e:ual proportion of total resource mobilised through e:uity and deferred e:ui e:uity ty issu issueses- On the the othe otherr hand hand88 the the forei foreign gn merc merchan hantt bank bankers ers were were almo almost st absen absentt in the the issu issuee management acti=ities of e:uity issues in 233I63H- Only one foreign merchant banker 9oined "ndian merchant bankers for one public issue managementThe analysis analysis of the table leads to the conclusion conclusion that issuer companies companies with large issue siAe relied more on foreign merchant banks than on "ndian merchant banking companies- This was because of the =ast international network of foreign originated merchant banks as compared to "ndian merchant banks-

9.6.6 Y/! "#, N>! ' E#$- P*#+ I,,, M/n/%d - M!+/n$ B/n0,

2> Thakur 'ollege of Science and 'ommerce


*ll *ll the the merch merchan antt bank bankss regi regist stere ered d with with SE%" SE%" ha=e ha=e not not been been in=o in=ol= l=ed ed in the the acti acti=it =ites es of management of public issues- E=en those merchant banks in=ol=ed in these acti=ities8 ha=e not played an e:ual role as lead managers8 co6lead managers and ad=isors to the e:uity shares- Some lesser known merchant bankers were in=ol=ed in e=en single issue in a year while some others were the managers for more than ten public e:uity issues alsoTable >-> re=eals the year wise number of merchant banks who acted as lead managersCco6lead managerCad=isors to different number of public e:uity issues- "t has been depicted in the table that total merchant banks >3> in=ol=ed in the management of e:uity issues during the period under re=iewOf the total merchant banks in=ol=ed8 227 /@5-2J1 lead merchant banks managed 462 issues only in a year while >I /44-HJ1 handled more than ten public issues of e:uity share- )owe=er8 ma9ority of the merchant banks ha=e handled less than four public issues- "n 4HH76HI8 out of 5@ merchant banks in=ol=ed as managers to the public issues8 as many as @2 /I3J1 handled one or two issues only- Similarly 2? /@7-@J1 merchant banks in 4HHH62333 and 4I / 52-4J1 in 233>63@ managed only 462 issues- @2 /42-HJ1 secured the business of ?6> e:uity issues during the period of study- )owe=er8 I /2@-IJ1 lead managers managed managed more than ten e:uity issues in 233@6358 233@6358 while three lead managers each were able to secure the confidence of more than 43 issuer companies in 2335637 and 233763I-

2@ Thakur 'ollege of Science and 'ommerce

Study of underwriting of public issue by merchant bank T/* T/* 9.>Y/! "#, N>! ' E#$- P*#+ I,,, M/n/%d - M!+/n$ B/n0,(M!+/n$

B/n0!, /, L/d M/n/%! C4 L/d M/n/%!, Ad=#,!,) Y/!,

246

8 49

I,,,

I,,,

3 I,,,

;E

5  27

I,,,

I,,,

A= 27 I,,,

4HH76HI

@2 /I3-31

4HHI6HH

4> /@3-31

4HHH633

233@635

/?-I1

35

6

34

/24->1

/?-51

3>

32

3?

/4 /43-31

/@-31

/7-@1

43

3?

34

/4 /4I-H1

/@-71

/4-H1

3?

6

34

//47-51

/@-H1

3:

32

3@

6

/7 / 7-41

/47-I1

3?

3@

/7 / 7-@1

/42-@1

3>

3I

/7 / 7-@1

/4@-41

34

35

/@ / @-H1

/?@-?1

3?

32

/2 /23-31

/4?-?1

32

3>

/H / H-41

/4I-21

34

3>

/? / ?->1

/4?-I1

3?

3I

/H / H-71

/2@-I1

3>

3?

/H-@1

/7-21

32

3?

/@-31

/7-@1

/4-H1

97

:8

2;

/5-71

/23-31

3?

32

32

/4 /4?-51

/H-41

/H-41

4I

6

3>

32

/52-41

/4?-I1

/5-H1

4?

3>

32

34

/4 /42-H1

/5->1

/?-21

3>

3>

3?

/H /H-@1

/H-@1

/7-21

43

3@

3?

/2 /2@-31

/42-@1

/7-@1

34

34

6

6

6

68

/> />-?1

/>-?1

@2

2H

22

25

>I

979

/4 /42-H1

/7-21

/@->1

/5->1

/44-H1

3H

2>

47

24 /H4->1

Total

/H-51

6

/4 /4?-?1

/>2-@1 233I63H

/H /H-51

34

3?

/@7-41 233763I

32

In=*=d

34

/>4-H1 2335637

3@

MB,

32

/>3-H1 233>63@

3> /25-71

233?63>

35 /?@-?1

233263?

27 /@3-H1

2334632

2? /@7-@1

2333634

3@

T$/*

227 /@5-21


2:

66

65

82

96

97


N$: 6 Figures in parentheses show the percentage of total merchant bankersin=ol=ed during the rele=ant yearS!+: 4 'ompiled from offer documents issued by companies during the rele=antyears-

The declining number of merchant banks engaged in issue management acti=ities in the latter years of the study period shows that only efficient and professional merchant banks ha=e remained in this field-

9.6. 9.6.8 8

Ind# Ind#/n /n M!+ M!+/ /n$ n$ B/n0 B/n0,, /, L/d L/d M/n/ M/n/% %!, !, #n P P*# *#++ I,, I,,,, ' E# E#$$-

The performance of indi=idual "ndian merchant banks on the basis of number and amount of e:uity issues managed has been shown in Table Table >-@ and 'hart >-? On the basis of a=erage issue siAe of e:uity managed by "ndian merchant merchant banks8 banks8 +otak (ahindra 'apital 'o- managed largest siAed issues with an a=erage siAe of s- 7I7-74 crore- On the other hand8 +eynote 'orporate Ser=ices managed minimum siAed issues with a=erage siAe of s- ?3->H crore only during the period under study- This merchant banker was found acti=e in the latter part of the period under re=iew* number of tiny e:uity issues ha=e been managed by many small merchant banks8 included in other merchant banks category- The number of such issues stood at 27@ in=ol=ing an amount of s438324-@5 crore during the period of twel=e years"t is re=ealed from the table that "ndian merchant banks were able to manage a total of @>> e:uity issues issues with with an aggrega aggregate te of s- 7I8I>3 7I8I>3-5? -5? crore- This This amount amount constit constitute uted d @2-3IJ @2-3IJ of total total amount amount mobiliAed through e:uity issues during the period under study+otak (ahindra 'apital 'o- &td managed a total of ?3 e:uity issues which mobiliAed s- 2?85?4-22 crore during the period from 4HH76HI to 233I63H- On the basis of amount of issues managed8 +otak (ahindra performed better than other "ndian merchant banks co=ered by the study- )owe=er8 it was S%" 'apital (arkets &td /S%" 'aps-18 which managed a ma;imum number of >? e:uity issues during the period under re=iew- EnamSecurities &td managed 44-4@J of total funds mobiliAed through e:uity with a total of ?@ public issues during the same period-



"t has been highlighted by the table that "'"'" Securities &td remained the preferred choice of ?2 issuer companies with s-4?8H?I->> crore mobiliAation through them- )owe=er8 S%" 'apital (arkets handled the largest number of issues amounting to s- 58I5I-?4 crore during the period of the study- +ar=y "n=estor Ser=ices &td was approached by ?> issuer companies and this mechant banker could manage s- 48??5-@H crore contributing 3-IJ to the pool of resources mobiliAed during the period under re=iew- "t remained acti=e in public issue management ser=ices for si; years only"t is depicted by the table that "D%" &td- and "D%" 'apital (arkets managed only 42 public e:uity issues issues which which mobiliA mobiliAed ed funds funds amount amounting ing to s- I4I-35 I4I-35 crore8 crore8 whereas whereas +eynot +eynotee 'orpor 'orporate ate Ser=ic Ser=ices es manage managed d 25 e:uity e:uity issues issues which which in=ol= in=ol=ed ed minimu minimum m funds funds amount amounting ing to s- 7H2-I3 7H2-I3 crorecrore- "&.FS "&.FS "n=estsmart showed their presence in the latter part of the study period and managed 4> e:uity issues with an aggregate amount of s- 47??-7> crore /4-4>J1-

"t is re=ealed re=ealed from the table that "ndian merchant merchant banks were able to manage a total of @>> e:uity issues with an aggregate of s- 7I8I>3-5? crore- This amount constituted @2-3IJ of total amount mobiliAed through e:uity issues during the period under study+otak +otak (ahind (ahindra ra 'apital 'apital 'o- &td managed managed a total total of ?3 e:uity e:uity issues which mobiliAe mobiliAed d s2?85?4-22 crore during the period from 4HH76HI to 233I63H- On the basis of amount of issues managed8 +otak (ahindra performed better than other "ndian merchant banks co=ered by the study- )owe=er8 it was S%" 'apital (arkets &td /S%" 'aps-18 which managed a ma;imum number of >? e:uity issues during the period under re=iew- Enam Securities &td managed 44-4@J 44-4@J of total funds mobiliAed through e:uity with a total of ?@ public issues during the same period"t has been highlighted highlighted by the table that "'"'" Securities Securities &td remained remained the preferred preferred choice of ?2 issuer companies with s-4?8H?I->> crore mobiliAation through them- )owe=er8 S%" 'apital (arkets handled the largest number of issues amounting a mounting to s- 58I5I-?4 crore during the period of the study- +ar=y "n=estor Ser=ices &td was approached by ?> issuer companies and this mechant banker could manage s48??5-@H crore contributing 3-IJ to the pool of resources mobiliAed during the period under re=iew- "t remained acti=e in public issue management ser=ices for si; years only"t is depicted by the table that "D%" &td- and "D%" 'apital (arkets managed only 42 public e:uity issues issues which which mobiliA mobiliAed ed funds funds amount amounting ing to s- I4I-35 I4I-35 crore8 crore8 whereas whereas +eynot +eynotee 'orpor 'orporate ate Ser=ic Ser=ices es manage managed d 25 e:uity e:uity issues issues which which in=ol= in=ol=ed ed minimu minimum m funds funds amount amounting ing to s- 7H2-I3 7H2-I3 crorecrore- "&.FS "&.FS "n=estsmart showed their presence in the latter part of the study period and managed 4> e:uity issues with 2I Thakur 'ollege of Science and 'ommerce


an aggregate amount of s- 47??-7> 47??-7> crore /4-4>J1-On /4-4>J1-On the basis of a=erage issue siAe of e:uity managed managed by "ndian merchant banks8 +otak (ahindra 'apital 'o- managed largest siAed issues with an a=erage siAe of s- 7I7-74 crore- On the other hand8 +eynote 'orporate Ser=ices managed minimum siAed issues with a=erage siAe of s- ?3->H crore only during the period under study- This This merchant banker was found acti=e in the latter part of the period under re=iew* number of tiny e:uity issues ha=e been managed by many small merchant banks8 included in other merchant banks category- The number of such issues stood at 27@ in=ol=ing an amount of s- 438324-@5 crore during the period of twel=e yearsThe table further re=eals that the top lead merchant bankers were generally absent in 233I63H because of depressed market conditions+otak (ahindra 'apital 'o- was again on the top of the list with the management of 4@-54J resources mobiliAed through e:uity issuers by "ndian merchant banks- "t was followed by Enam Securities and "'"'" Securities &td- with 44-4@J -

2H Thakur 'ollege of Science and 'ommerce


From the abo=e analysis8 it may be concluded that +otak (ahindra 'apital 'o- and EnamSecurities &td performed better than other "ndian merchant banks on the basis of total amount managed- )owe=er8 on the basis of number of issues8 S%" 'apital (arkets performed better than other "ndian merchant banks during the period under study-

?3 Thakur 'ollege of Science and 'ommerce


The table shows that the largest amount of s- ?28@4I crores was mobilised in 233763I- This amount included a sum of s- 457?5-?3 crore raised by State bank of "ndia alone- The year 233I63H further saw a declining trend in rights issues market and only 428 522 crores could be raised through 2? issues during this year- )owe=er8 only s- >?4 crore could be raised through 42 issues in 233263?- The largest number of issues />H1 were witnessed in 4HH76HI and the lowest number of 42 issues took place in 233263?*=erage siAe of the issue also showed a fluctuating trend during this period- "t was ?>-7@ crore in 4HH76HI8 courtesy the largest rights issue of s- 7HH-2H crore by "spat "ndustries &td-8 which indi=idually contributed >7J of yearBs total mobiliAation- "n 4HHI6HH8 a=erage issue siAe declined to the lowest figure of s- 24-I> crore- * reco=ery in rights issue market in 4HHH62333 increased the a=erage issue siAe to s27 crore in 2333634- *=erage issue siAe further increased to I3-37 crore during the year 2334632 due to a single rights issue of debentures of s- 574-5? crore by Tata Engineering . &ocomoti=e 'o- &td- "t again increased in 233>63@ to s- 4?H-37 crore after a decline in pre=ious two years- The year 233763I witnessed the highest a=erage issues siAe of s- 43I?-H? crores due the largest issue of s- 4587?5-?3 crore by State %ank of "ndia- O=erall8 the a=erage siAe of the issue was 4H2-I3 croreThe table >-4> further shows the number of merc hant banks in=ol=ed in the management of rights issues in the role of lead managers and co lead managersC ad=isors to the issue- "n all8 2I5 merchant banks /223 as lead managers and 55 as co6lead managersCad=isors1 were in=ol=ed in the management of ??3 rights issues during the period under re=iew- The largest number of merchant bankers in=ol=ed was in the year 4HH76HI which was @7 for >H rights issues- On the other hand8 only 4> merchant banks were in=ol=ed in 42 rights issues during the year 233263?- * declining number of merchant banks in=ol=ed in the management of rights issues were noticed during the latter period of study- The trend shows that only reputed and professional merchant banks with good track tr ack record has remained in the management acti=ities of rights issues-

M/n/%>n$ ' R#%$, I,,, Table >-4@ and chart >-5 depicts the year wise in=ol=ement of both foreign and "ndian merchant banks in rights issues*s re=ealed in the table8 out of aggregate s- 5?852>-?H crore mobilised through rights issues8 a sum of s- 278?7@->> crore was managed by "ndian merchant banks while foreign merchant banks was able to manage a sum of ?582>I-H@ crore- The amount of rights issues managed by foreign merchant bankers was in the range of s- 7-I? crore in 233263? to s- 248H@5-I3 crore in 233763I8 while the range ?4 Thakur 'ollege of Science and 'ommerce


of amount managed through "ndian merchant bankers =aried from s- 472->5 crore in 2334632 to s438@54-72 crore in 233763I* glance at the number of rights issues managed by foreign and " ndian (erchant banks re=eals that while only @7 issues were managed by foreign merchant banks8 "ndian merchant %anks were the preferred choice of 27? issuers of rights shares- During the period under re=iew8 foreign merchant banks were noticed to ha=e managed in the range of one to nine rights issues and a nd this range in case of "ndian (erchant %anks was from eight rights issues in 2334632 to >3 issues in 4HH76HI

R#%$, I,, M/n/%>n$ - L/d M!+/n$ B/n0!,

(Amount in Rs. crore) Y/!,

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Thakur 'ollege of Science and 'ommerce

>2?->? /HI-4H1

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6;<8;:.99 (98.78)

N$: 4 Figures in parentheses show percentage of total amount mobilised throughrights issues S!+: 6 'ompiled from &etters of Offer of 'ompanies8 SE%" !ebsite-

?? Thakur 'ollege of Science and 'ommerce


The following chart also shows the comparati=e share of foreign and "ndian merchant bankers in the year wise amount mobiliAation through right issues-

Further8 the table re=eals that >?-3?J of total amount mobiliAed through rights issues was managed by "ndian merchant bankers- This share was @5-H7J in case of foreign merchant banks- Foreign merchant banks were able abl e to secure the business of I?->?J of total amount a mount in 23346328 which went down to 7-@HJ only in 233>63@- "n 233263?8 foreign merchant banks were able to manage only one rights issue of a small amount amount of s- 7-I? crore- On the other hand8 the proportion proportion of total amount amount of rights rights issues managed managed by "ndian merchant banks was 45-@7J in 2334632 which increased to as high as HI-4HJ in 233263?The analysis of a=erage issue siAe of right issues managed by both categories of merchant bankers shows that foreign merchant banks handled comparati=ely comparati=ely higher higher issue siAe in all the years e;cept 233>6 3@- So8 foreign merchant banks were the preferred choice of issuers of comparati=ely large amount of rights issues-

?> Thakur 'ollege of Science and 'ommerce


Ind#/n M!+/n$ B/n0, /, L/d L/d M/n/%!, #n R#%$, I,,, The performance of top "ndian merchant bankers in the management of right issues on the basis of number of issues and total amount managed has been shown in Table Table "t is =isible from the table that "ndian merchant banks were the lead managers to 27? rights issuesB with an aggregate amount of s- 278?7@->> crore- Thus "ndian merchant banks contributed >?-3?J to the pool of total funds mobiliAed through rights issuesThe The tabl tablee >-45 >-45 furt furthe herr show showss that that S%" S%" 'apit 'apital al (ark (arket etss &td&td- was was on the the top top rank rank with with the the management of s- @87I3-7H crore through 2@ rights issues- This was followed by "'"'" Securities and +otak (ahindra 'apital 'o- &td- with s- @82H5-3? crore and s- >>>>-4> crore respecti=ely- *mong the top ranking merchant banks8 Enam Securities managed a sum of s- ?>7H-?4 crore through 4@ rights issues and *mbit 'orporate Finance secured the busniess of s- 442@-@@ crore through fi=e issues- +eynote 'orporate Ser=ices &td- was able to participate in ?4 issues of s- 5@3-22 crores- Other merchant bankers in=ol=ed as lead managers were +ar=y "n=estor Ser=ices for s- 472-5H crore8 "&.FS "n=estsmart with fi=e issues of s/e1 crore s- ?34->H crore and &odha 'apital 'apital three issues of s- 47H-22 47H-22 crore- On the basis of number of rights issues managed8 +eynote 'orporate Ser=ices was the preferred choice of the largest number of issuers /?4 rights issues1 with an a=erage siAe of s23-H7 crore- "'"'" Securities and S%" 'apital (arkets &td were the other top ranking players with the in=ol=ement in 2I and 2@ rights issues respecti=ely- &odha 'apital participated in only three issues while "&.FS "n=estsmart was able to manage fi=e rights issuesThe analysis of a=erage siAe of rights issues managed by different "ndian merchant bankers showed that +otak (ahindra 'apital 'apital 'o- managed largest largest siAed rights rights issues /ele=en in number1 with an a=erage a=erage issue siAe of s- >3>-4> crore- "t was followed by Enam Securities with an a=erage issue siAe of s- 2?4-H@ crore from 4@ rights issues- On the other hand8 +ar=y "n=estors Ser=ices and +eynote 'orporate Securities &td- managed minimum minimum siAed issues during the period period under re=iew with a=erage issue siAe of s- 47-25 crore and s 23-H7 crore respecti=ely?@ Thakur 'ollege of Science and 'ommerce


"'"'" Securities was the manager of rights issues to the tune of I-?2J of total fund mobilised during the period of study- "t managed 53-H2J of total rights issue amount in 4HH76HI and 52-73J in 233>63@- )owe=er8 its share declined to 4-42J in 233763I and less than one percent in 2335637- Similarly S%" 'apital (arkets &td showed their presence by managing H-3IJ of total resource mobilised through rights issues and participated continuosly during the entire period under re=iew e;cept in 4HH76HIEnam Securities managed an aggregate @->7J of amount through rights issues with its ma9or share in 2335637- +otak (ahindra 'apital 'o- was able to manage 5-HIJ of the fund mobilised through rights issues- "t was the lead manager8 along with other fi=e merchant bankers8 to the largest issue of s4587?5-?3 crore by State %ank of "ndia in 233763I- On the other hand8 the share of "&.FS "n=estsmart8 &odha &odha 'apital 'apital &td- and +ar=y "n=estors "n=estors Ser=ices &td- in the total funds raised through through rights rights issues was less than one percent* number of tiny rights issues ha=e been managed by =arious small merchant banks co=ered in other merchant banks category- This included a total of 4>3 rights issues mobiliAing an aggregate sum of s- @I7H-@H crore /H-2>J1 during the period of studyFrom the analysis of abo=e table8 it may be concluded that S%" 'apital (arkets &td- performed better than tha n other "ndian merchant banks- "t was the preferred choice of 2@ issuers of rights shares with an aggrega aggregate te amount amount of s- @7I3-7 @7I3-7H H crorecrore- Similar Similarly ly issuers issuers with with small small issue issue siAe prefer preferred red +eynot +eynotee 'orporate Ser=ices as their lead merchant banker *mount *mount managed by "ndian "ndian merchant banks as lead managers during during the period period from 4HH76HI 4HH76HI to 233I63H has been presented in the following chart-



F!#%n M!+/n$ B/n0, /, L/d M/n/%!, #n R#%$, I,,, * small number of foreign merchant banks registered with SE%" ha=e also played a leading role in the management of public and rights issues floated by 9oint stock companies during the period under re=iewTable >-47 shows the year wise participation of indi=idual foreign based merchant bankers in the management of rights issues as lead managersOut of @7 rights issues with an aggregate amount of s- ?582>I-H@ crore lead managed by foreign merchant banks8 DS$ (errill &ynch secured the confidence of 42 issuer companies with an aggregate amount amount of s- 43842H->2 43842H->2 crore- This amount was 4@-H2 J of the total resource mobilised mobilised through rights issues during the period of study- *nother foreign merchant bank8 ,( (organ Stanley was the lead manager in 4H rights issues with the total amount of s- 438442-4@ crore /4@-IHJ1- "t managed 57-5@J of the total funds in 2334632 and 4I-4>J of the funds mobilised through rights issues in 2335637- )S%' Securities . 'apital /"ndia1 &td- participated in the management of rights issues for four years only and managed a sum of s- ?3>-2I crore through 7 issues- 'itigroup #lobal (arkets helped to contribute 4?-@@ J of total funds through four rights issues"n the category of other foreign merchant banks8 Deutsche E:uities /"ndia1 was the lead manager along with other merchant bankers for the rights issue of s- s- 4587?5-?3 crore by State bank of "ndia in 233763I- Similarly8 ,$ (organ and *%N *mro Securities /"ndia1 &td participated as lead managers for the largest issue of s- @83>7-73 crore and >84>@-I4 crore by )indalco "ndustries and Tata (otors respecti=ely in 233I63H- Standard 'hartered #rindley %ank acted as lead managers in two rights issues of s- 447-3H crore and UNO *sia "n=estment %an:ue &td- was the lead manager for a single rights issue of s- @-33 crore- The amount of rights issues managed by foreign merchant bankers has been shown in the following chart also-



P*#+ S+$! B/n0, /nd $#! S,#d#/!#, /, M/n/%!, $ $ R#%$, I,,,

From an analysis of letters of offers issued by companies for rights issues during the period under re=iew8 a dismal performance of public sector banks and their subsidiaries was witnessed in the management of rights issues with the e;ception of S%" 'apital (arkets &td- This

?I Thakur 'ollege of Science and 'ommerce


merchant bank competed with other top ranking merchant banks in "ndia by handling 2@ rights issues for s- @87I3-7H crore as a lead manager-

Number and amount of rights issues managed by all public public sector banks in the capacity of lead merchant banker is presented pres ented in Table Table >-4I

P*#+ S+$! B/n0, /nd T#! S,#d#/!#, S,#d#/! #, /, L/d M/n/%!, #n R#%$, I,,,

M!+/n$ B/n0,

S. N&

N&. &' !#%$,

A>&n$

I,,,

(R,. In +!&!)

4-

S%" 'apital (arkets &td-

2@

@87I3-7H

2-

$un9ab National %ank

34

7>-H?

?-

'anara %ank

3?

7?-2H

>-

"ndian O=erseas %ank

32

5?-I@

@-

"ndbank (erchant %anking Ser=ices

32

?I->>

5-

%O% 'apital (arkets

3?

?5-24

7-

%O" Finance

32

7->7

I-

0i9ay %ank

34

@-27

H-

'entral %ank of "ndia

34

4-?@

T$/*

97

3<72.3

S!+: 4 'ompiled from &etters of Offer by "ssuer 'ompanies8 SE%" website and$rime Database-

?H Thakur 'ollege of Science and 'ommerce


*s re=ealed in the table8 out of total >3 rights issues lead managed by merchant banks di=isionsC subsidiaries of public sector bank8 S%" 'apital (arkets &td had a share of 2@ right issues in=ol=ing a toal amount of s- 583I4-53 crore- *ll other merchant banker were the lead manager for one or two right issues of =ery =er y small siAe- Two right issues managed by "ndbank (erchant %anking Ser=ice s &td included one issue of s- 53-@3 crore 9ointly lead managed by pri=ate merchant banker8 *+ 'apital Ser=ices- &td-

"n addition to this8 'anara %ank was the co6lead manager to four rights issues for an aggregate amount of s- H24-3H crore8 including a largest issue of s- H77-2H crore in 4HH76HI- %O% 'apital (arkets &td-8 a subsidiary of %ank of %aroda8 acted as co6lead manager in one rights issue of s- I-H5 crore only in 4HH76HI*nalysis of offer documents showed that the large siAe issues were managed by multiple lead managers while single merchant banker acted as lead manager in small siAe issues- *ppointment of merchant bankers as ad=isors to the issue was not the common practice among issuer companies- * number of lead managers8 co6lead managers8 co6managers were appointed by both "'"'" &td and "D%" &td- for their bond issues to public- Further8 merchant banking di=isionsC subisidiaries of public sector banks showed as =ery limited participation in public issue management of e:uity and debt during the period under re=iew- !ith !ith the e;ception of S%" 'apital (arkets and 'anara %ank8 no other public sector bank performed a significant role in the issue management acti=ities-

>3 Thakur 'ollege of Science and 'ommerce

CHAPTER4V

D/$/ An/*-,#, T*, /nd T+n#, ,d '! An/*-,#, /nd P!,n$/$#n "n the present study8 statistical tools such as a=erage8 percentage8 rate of return8 standard de=iation8 coefficient of =ariation and simple regression analysis ha=e been employed for the analysis of data and to draw meaningful conclusion therefrom- * number number of analytical anal ytical tables and charts c harts ha=e been constructed c onstructed for the effecti=epresentation of the results of analysis- 0arious tools and techni:ues used in the study ha=e been discussed below<

P!'!>/n+ E=/*/$#n #n M/n/%>n$ ' P*#+ I,,, The performance of indi=idual "ndian and foreign based merchant bankers8 who acted as lead managers to the public and rights issues ha=e been analysed with respect to number of issues handled8 amount raised8 percentage of total amount raised during the period under re=iew#enerally a single merchant banker has been appointed as lead manager to the issue- )owe=er8 multiple lead managersC book runners lead managers ha=ing e:ual role in the issue management acti=ities ha=e also been appointed in a number of large issues- "n order to a=oid duplication in such cases8 the amount raised has been apportioned e:ually to all lead managers and the number of that particular issue has been assigned to the first lead manager in the list of such lead managers-

P!'!>/n+ ' M!+/n$ B/n0!, #n Und!"!#$#n% ' P*#+ I,,, Under this part of the study8 pattern of underwriting of public issues has been analysed- The offer docume documents nts of compan companies ies stated stated the actual actual amount amount under underwrit written ten by differ different ent mercha merchant nt banker bankerss in a particular issue- Year wise total amount and percentage of this amount to total amount underwritten has been found for indi=idual merchant bankers in the category of "ndian and foreign based merchant bankersThe merchant bankers ha=e been ranked on the basis of total amount and proportion of total amount underwritten during the period under re=iewr e=iewights issues ha=e not been considered for this purpose as only a few of the rights issues ha=e been found to ha=e underwritten during the period of study-

R/$ ' R$!n An/*-,#, An/*-,#, $erformance of indi=idual lead managers on the basis of a=erage return obtained by in=estors /difference of issue price and market price1 from NSE listed "$Os at si; points of time8 that is8 return on first trading day /listing day18 after one week8 one month8 three months8 si; months and twel=e months from the first trading day has been measured with the help of following steps< (/) N>! ' IPO, >/n/%d >/n/%d - #nd#=#d/* >!+/n$ >!+/n$ /n0!, /n0!,

Total Total number of NSE listed list ed "$Os managed by indi=idual merchant mercha nt banker during the period under re=iew has been assigned to that merchant bankers8 whether

they ha=e managed it indi=idually or 9ointly with other merchant bankers- (erchant bankers acting as lead managers/s1C%ook runner lead manager/s1 only ha=e been considered for this analysis(+) R$!n R$!n '!> '!> #nd#=#d #nd#=#d/* /* IPO

The simple return from indi=idual "$O of e:uity share has been found out at si; inter=als of time as stated abo=e with the help of the following formula< Simple return = (closing (closing market price price on return date – issue price price ) × 100 Issue Issue Price

Share prices of NSE at the return date ha=e been taken for this purpose- !hen a return date happens to be a holiday or no trading day at NSE8 then share prices of the ne;t a=ailable date ha=e been taken for finding out the return- 'losing market price on the stated day has been taken for this purpose(+) A=!/% A=!/% !$!n !$!n ' IPO, >/n/%d >/n/%d - #nd#=#d/* >!+/n$ >!+/n$ /n0!,

Separate positi=e and negati=e a=erage returns of "$Os managed by indi=idual merchant bankers ha=e been calculated at different inter=als of time- This a=erage has been measured with the following formula< Sum of (+ve)/ (ve) annual annual return ! "o# of IP$s s%o&ing (+ve)/ (ve) (ve) return

Further8 a=erage annual return has been calculated at each point of time for the respecti=e lead manager /merchant banker1- Then total a=erage annual return from "$Os managed by indi=idual merchant banker has been measured by di=iding the total of a=erage r eturns for the period under re=iew at each time ti me inter=al by the number of years8 indi=idual merchant banker participated as lead manager in sample "$Os(d) A=!/% A=!/% M/!0$ M/!0$ R$!n '!> '!> NSE IPO,

For this purpose8 first of all annual a=erage return from total NSE listed "$Os ha=e been calculated for each time inter=als8 that is8 return on first trading day /listing day18 after one week8 one month8 three months8 si; months and twel=e months from the first trading day- Then total a=erage return is calculated by aggregating the a=erage annual return at each point of time and di=iding it by the number of years of study i-e- ten- This has been shown in the anne;uranne;ur-

(') A=!/% A=!/% /nn/* /nn/* #nd !$!n !$!n (/,d n NIFTY) *=erage *=erage annual inde; return for each financial year during the period under re=iew /based on N"FTY1 for the purpose of comparati=e analysis has been calculated as follows<

(Inde' at t%e close of t%e ear – Inde' in t%e opening of t%e ear) ×100 $pening Inde'

(') S#>@* S#>@* *#n/! !%!,,# !%!,,#n n An/*-,#, An/*-,#, egression is the determination of a statistical relationship between two or more =ariables- * simple linear regression is confined to two =ariables only- "n this type of regression analysis8 the =alue of one =ariable is estimated on the basis of the =alue of another =ariable- "n the present

study8 this analysis is used to measure the impact of a=erage annual inde; return and a=erage annual market return of "$Os on the a=erage annual returns of "$Os managed by indi=idual merchant bankersThe regression e:uation takes the form of<6 Y  bo P bi L !here Y represents a=erage annual return from "$Os managed by indi=idual merchant bankers /dependent =ariable18 LB the a=erage annual inde; return and annual market return of "$Os /independent =ariabl =ariable18 e18 boB boB is the interce intercept pt and biB is the regress regression ion co6eff co6efficie icient nt of indepe independe ndent nt =ariab =ariable le in the regression model-

An/*-,#, ' In=,$!, !,@n, $ $ P*#+ I,, Year wise and lead manager wise subscription ratio /number of times issue subscribed1 ha=e been analysed separately by retail in=estors and by all categories of in=estors with the help of following statistical tools<

(/) A!#$>$#+ A!#$>$#+ M/n "t is the most common measure of central tendency and may be defined as the =alue which is obtained by di=iding the sum of the =alues of =arious gi=en items in a series by the total number of items-

L /*rithmetic (ean1



L4 P L2 P L? P Q-----Ln

N !here L48 L2 QQQQLn  N  total number of items

0alue of items

This method has been used to measure the year wise and merchant banker wise subscription ratio of public issues of e:uity by retail in=estors and by all categories of in=estors- Subsciption ratio has been calculated as follows< *nnual Subscription atio  Sum of number of times o=ersubscription of all public issues in a year R Number of $ublic "ssues in a yearSubscription ratio of public issues managed by indi=idual merchant banker has been calculated as< Sum of times of subscription of all public issues managed by indi=idual merchant banker R No- of public issues managed by particular merchant banker-

()S$/nd/!d D=#/$#n Standard de=iation is the commonly used measure of dispersion- "t is defined as the s:uare root of the a=erage of s:uares of de=iations8 when such de=iations for the =alues of indi=idual items in a series are obtained from the arithmetic mean- "t is calculated as under<

!here σ

the standard de=iation

Χ

each =alue in the population

Χ

the mean of the =alues

N



the number of =alues /the population1

This method has been used to measure the dispersion dispersion in the subscription subscription /scatterness /scatterness in the le=el1 of public issues- "t has been calculated on yearly basis separately for subscription le=el of retail in=estors and for all categories of in=estorsSimilarly standard de=iation and co6efficient of =ariation of subscription le=el of public issues managed by indi=idual merchant bankers during the period under re=iew has also been calculated for retail in=estors and for all categories of in=estors-

(+) C4''#+# C4''#+#n$ n$ ' V/!#/$ V/!#/$#n #n

'oefficient of =ariation is a relati=e meausure of dispersion and is often used for comparing the similar measures of other series- "t is calculated as follows< follows<

'o6efficie cient of 0ariati ation 

Standard de=iati ation  433 *rithmetic (ean

The standard de=iation alongwith relati=e measure like co6efficient of =ariation is regarded as a =ery satisfactory satisfactory measure of the scatteredness of a series- "t has been used to measure the year wise and merchant wise scatterness in the subscription of public issues during the period under re=iew- * high degree of standard de=iation and coefficient of =ariation in the subscription ratio of public issues indicates

that wide =ariation in the subscription of different public issues in a year and also by different public issues managed by indi=idual merchant bank-

CHAPTER4VI OBSERVATION AND SUGGESTATIONS Time and again the (erchant %anking "ndustry in "ndia witnessed8 e;perienced and underwent significant changes8 The =ery purpose for which these firms are commenced their ser=ices should be taken care of and they should mould their policy decisions and acti=ities to mo=e in tune with the main ob9ecti=e of "n=estorsB protection and to create a healthy en=ironment in capital markets- No doubt8 (erchant %anking firms are sub9ect to a host of control measures8 regulations and rules framed and guided by SE%"- To some e;tent8 fre:uent changes and C or amendments to policies and control measures8 though needed for smooth working of the securities "ndustry8 pro=es to be detrimental to the =ery e;istence of the (erchant %anking system in the country- The SE%"Ks *ct8 4HH2 confers power upon SE%" to super=ise and control the affairs of the (erchant %anking firms in "ndia- "t e;ercises control o=er the all acti=ities of the (erchant %anking firms through different measures- *ssessment of the (erchant %anking firms performance is beset with many diffic difficulti ulties es on account account of the di=erse di=erse commer commercial cial ob9ect ob9ecti=e i=ess that that influen influence ce their their perfor performan mancece Notification of (erchant (e rchant %anking egulations and amendments to it from time to time by SE%" brought the (erchant %anking "ndustry to a new dimensionThe =arious studies which had been undertaken in "ndia for e=aluating the performance of (erchant %anking firms and the implications of these on securities "ndustry- No single study has been emerged so far pertaining to the e=aluation of (erchant %anking firms and in6depth study on their acti=ities as well as operational and financial performance in the light of changing regulatory en=ironment)ence8 the esearch esearch Study captioned captioned “Merchant Banking in India6 India 6 A study with Special Reerence to !"aluation o #unctions and $erormance%& is an attempt in the direction of penetrating in to the sub9ect and to emerge with truth and illuminating commentsThis concluding 'hapter8 besides8 co=ering =arious issues related to role8 responsibilities and future trends of (erchant %anking "ndustry8 also co=ers the opinions and remarks made by the industry professional in the field about the (erchant %anking- &ast but not least8 this 'hapter also co=ers the conclusions drawn and possible suggestions8 based on the study8 were made with the ob9ecti=e of smooth functioning of the (erchant %anking system in the country-"n recent past8 the small in=estor has turned his back on the primary capital market- "ssue after issue iss ue as failed to capture his imagination8 rekindle his enthusiasm8 and reinforce his faith- )e has lost ail hopes of appreciation of his in=estment- *nd this when all these years millions ha=e though capital market8 ate capital market and dreamt capital market- "t needed an e;traordinary effort and skill the dri=e the small in=estor away )igh premiums8 false premiums and gray market operations- The professed protector of his interests first laid down the dictum of propooonate allotment8 then of minimum subscription8 all working against his interests- This would make an obser=ant student of the stock market infer that there is some game plan afoot to dethrone the small in=estor from his pre6 eminent position in the capital market- "n the traditional "ndian market-

C/@$!4VII

CONCLUSION

•

*n "$O is the first sale of stock by a company to the public-

%roadly speaking8 companies are either pri=ate or public- #oing public means a company is switching from pri=ate ownership to public ownership•

•

#oing public raises cash and pro=ides many benefits for a company-

The dot com boom lowered the bar for companies to do an "$O- (any startups went public without any profits and little more than a business plan•

•

#etting in on a hot "$O is =ery difficult8 if not impossible-

•

The process of underwriting in=ol=es raising money from in=estors by issuing new securities-

•

'ompanies hire in=estment banks to underwrite an "$O-

The road to an "$O consists mainly of putting together the formal documents for thE SE' and selling the issue to institutional clients•

The only way for you to get shares in an "$O is to ha=e a fre:uently traded account with one of the in=estment banks in the underwriting syndicate•

•

*n "$O company is difficult to analyAe because there isnKt a lot of historical info-

$eriods pre=ent insiders from selling their shares for a certain period of time- The end of the lockup period can put strong downward downward pressure on a stock•

•

Flipping may get you blacklisted from future offerings-

oad shows and red herring are marketing e=ents meant to get as much attention as possible- DonKt get sucked in by the hype•

* tracking stock is created when a company spins off one of its di=isions into a separate entity through an "$O•

DonKt consider tracking stocks to be the same as a normal "$O8 as you are essentially a second6class shareholder•

B#*#%!/@-

W,#$,

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Study of Underwriting of Public Issue by Merchant Bank (Recovered)

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