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Public cold shouldering dampens primary market

Aug 18, 2000

Yet another proof to vindicate that overall sentiment in the primary market is weak! The total resources raised from the domestic market (public issues, private placements, rights issues and overseas floatations) have declined sharply by 19% for the seven months ending July 2000. Compared to Rs 330 bn raised in the first seven months of 1999, they were lower by 19% at Rs 268 bn for 2000. However, fund raised through overseas floatations has shown a 417% rise, from Rs 7 bn last year to Rs 37 bn in the current year. This is factored by cheaper funds and the successful listing of Infosys Technologies on the NASDAQ, which triggered other Indian companies to go for overseas listing. ICICI Bank floated its maiden ADR issue during April 2000, raising US $ 175 m. Others major issues include foreign currency notes (FRNs) from Power Finance Corporation of India and Industrial Development Bank of India and global depository shares issue from Aptech Limited.

Nonetheless, there is notable decline on the public issue front as companies preferred to stay away from primary market due to depressed market scenario and high volatility on the bourses. Money raised through public issues dropped by 66%, from Rs 110 bn last year to Rs 37 bn for the same period in the current year. Even the subscription rates have dropped considerably. For instance, in FY99, out of the 36 information technology company issues, 30 issues witnessed subscription of more than 10 times compared to just one issue subscribed more than 10 times in the current year. However, recent years have witnessed private placement becoming a major source for raising funds accounting for almost 70% of the resources raised from the primary market.

Primary Blues
(Rs bn)
January 0.4 0.6 16.1 - 17.1
February 19.7 1.2 37.7 6.5 65.1
March 5.2 0.6 41.5 15.3 62.5
April 0.8 0.5 5.7 4.4 11.3
May 3.0 0.2 21.9 - 25.0
June 2.9 0.9 38.3 8.2 50.3
July 5.3 0.0 28.1 3.3 36.8
Jan-July '00 37.2 4.0 189.2 37.7 268.0
Jan-July '99 110.4 5.4 206.6 7.3 329.8
change %-66.3%-26.9%-8.4%417.4%-18.7%
*Public issues include bond issues
Source: CMIE

On the upside, the relaxation of investment norms for insurance companies is expected to give a big push to the debt market. The overseas floatations should also pick up given the fact that more than 15 companies have planned their ADR issues in the coming months. Though good public issues are expected in the later part of the current year, small issues from information technology companies are here to continue to cash in on the tech-mania!

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