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The changing colors of primary market

Mar 1, 2000

There was a 46% increase in the amount raised from primary market through rights and public issue during the first nine months of the fiscal 1999-2000. A sum of Rs 57.2 bn was raised during this period from the primary market with equity constituting 61% against a much lower share of 18% in the corresponding period of the previous year. The following measures seems to have helped in this revival of fortunes in the primary market:

  • Tax sops offered in the previous budget for the increased flow of funds into mutual funds.
  • Reduction in the long-term capital gains tax.
  • Abolition of fixed par value concept by SEBI.
  • Rationalization of listing requirement norms for securities in IT sectors.
  • A bullish secondary market.
  • Better risk surveillance systems in the secondary market.

    During this period the proportion of resources raised through public issues declined to 75.8% from 89.6% in the corresponding period of the previous year. The average size of the issue however remained unchanged at Rs 950 m. In terms of sector performance, banks and financial institutions raised the maximum followed by information and technology sector and cement and construction sector. Though banks and financial institutions raised the largest amount from primary market their share in total resource mobilization declined from 84.4% during April-December 1998 to 53.1% during April- December 1999.

    (Rs bn) April to December  
    Type of issue 1998 1999 % change
    Public 35.2 43.4 23%
    as % of total 90% 76%  
    Rights 4.1 13.8 237%
    as % of total 10% 24%  
    Total 39.3 57.2 46%
           
    Public (nos) 23.0 39.0 70%
    Rights (nos) 18.0 22.0 22%
    Total number of issues 41.0 61.0 49%
           
    Avg size of public issue 1.5 1.1 -27%
    Average size of rights 0.2 0.6 176%
    Average size of issue 1.0 0.9 -2%

    Debt issues accounted for 38.8% and equity issues accounted for 61.2% during April- December 1999 against 82.1% debt issues and 17.9% equity issues in the previous year.

    (Rs bn) April to December  
    Type of issue 1998 1999 % change
    Debt 32.24 22.21 -31%
    as % of total 82.1% 38.8%  
    Equity 7.05 35.02 397%
    as % of total 54.2% 61.2%  
    Total 39.29 57.23  
           
    No. of debt issues 13 7 -46%
    No. of equity issues 28 53 89%
           
    Avg size of debt issue 2.48 3.17 28%
    Avg size of equity issue 0.25 0.66 162%

    As for investor preference equities seem to be favorites as reflected by the 397% increase in the amount raised through equities during April to December 1999 against the corresponding period of the previous year. Also the lower interest rates offered on debt has resulted in lower mobilization through debt. There is a 31% decline in the amount mobilized thorough debt during the above period as compared to the previous year. The other interesting fact to note is that the average size of equity issues has gone up by 162% from Rs 250 m to Rs 660 m. The increase in the average size of equity issues could probably due to higher number of issues with a premium.


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