*The number includes the recent issues as on August 31, 2008

The total amount raised by the companies in the primary market in the current calendar year till August is Rs.18532.63 crore.

Lets have a look at the brief detail of the amount raised:

Total 38 companies planned to raise money in the year 2008 so far. But of these 38 companies, 3 companies had withdrawn their issues due to weak market sentiments. Out of the remaining 35 companies, 54.28% of the companies raised an amount less than or up to Rs.100 crore. According to our analysis we observe that weak investors sentiment in stock markets, easier ECB norms, high inflation rate and economic slowdown have led to the slow performance of majority of these companies by making them hover around their issue price. Moreover, many companies listed at a premium on the listing day but could not manage the same later on thereby falling their issue prices. However, there have been some issues which not only managed to perform well in such kind of market but are also trading at a premium on the back of strong fundamentals. Some of these companies are Vishal Info Tech, Anu’s labs, Kiri Dyes and Bang Overseas, who are enjoying a gain of 99%, 54%, 14% and 15% respectively (comparing the issue price with the closing price of September 11 2008).

Further, 10 companies raised an amount in between Rs.100 crore and Rs.300 crore constituting 28.57% of the total money raised so far. Out of these, 6 companies listed with premium when compared to their issue price and 4 companies including Sejal Architectural, shriram EPC listed with a discount and the remaining one company (GSS America) listed at the issue price itself. Out of the six companies, only 3 have managed to sustain the position of still trading above the issue price. This year so far also saw a mega IPO of that of Reliance Power that raised Rs.11700. This issue alone constituted 63% of total IPO money raised. But this much-hyped issue did not perform well in the market and is still trading below its issue price. After a few months of listing Reliance Power came out with a bonus issue to adjust the price after the bonus but did not succeed in the same. The price after the bonus issue is far below the adjusted price.

The remaining 5 issuer companies include some average issues like that of Onmobile Global, Future capital, REC etc. These companies raised an amount ranging from Rs.300 crore and Rs.900 crore and above. Most of these IPOs have reasonably been good with some exceptions such as IRB, KSK etc. The situation in IPO market may improve in last two-three months of the year, if the economies like US and UK, come out of the recession cycle, and inflation comes down owing to base effect and steps taken by the government.

* SECTOR BIFURCATION

OTHERS: This category includes different industries like agronomic seed industry, beverage packaging, alcohol, broaches & gear cutting tools, credit rating agency, education, fire protection etc.

REAL ESTATE: Real estate sector in the above mentioned chart also includes companies in the infrastructure development of roadways, highways and runways.

TEXTILE: Textile sector includes companies into apparel manufacturing, companies into yarn manufacturing and companies in all of the above activities.

Coming to the second proposal, this looks like a turn on for the primary market. This actually questions the practice of paying upfront for shares that you are not even sure of being allotted. This practice sounds a bit illogical… At the time of over subscription, you end up getting allotment of only a fraction of shares you applied for. Then why to pay full money for all the shares at the time of applying for the shares? The reason behind paying the full amount is that the stock issuing company needs to be certain about your commitment and that it should get the money on time once the shares are allotted to you. But the same thing can be achieved in another way, which the SEBI has come out with, by earmarking or blocking the money in your account. The money stays in your account during the entire IPO process, and gets deducted only when you are allotted the shares. This new IPO payment and refund process launched by SEBI is – Applications Supported by Blocked Amount (ASBA).

Now what is this all about?

Applications Supported by Blocked Amount (ASBA) payment method for IPO?
Introduced in July 2008, Applications Supported by Blocked Amount (ASBA) Process, is the alternative payment method (optional) for IPO application where the IPO bidding amount remains in investors account, but blocked by the bank until allotment is done. This is an additional method of payment, available exclusively for retail individual investors through Self Certified Syndicate Banks (SCSB’s). The purpose of adding this new payment option is to reduce the turn around time for IPO Stock listing and to make the refund process faster. Technically there is no refund process for this kind of payment option as only the required money for allocated shares is withdrawn from the investors account. Investor can use the remaining money as soon as the required money is withdrawn and the money gets unlock. As companies cannot list there shares before completing the refund process, ASBA will reduce there load on refund process and ultimately will make the listing process faster.

What are the basic requirements to apply in an IPO using ASBA process?
1. Only retail individual investors have ASBA facility at this time.
2. The bank where investor has account should be a ‘Self Certified Syndicate Banks (SCSBs). The list of the SCSB’s is available soon on SEBI’s website.
3. An investor can only apply at cut-off price. Once submitted the bids cannot be revised. Investors are allowed to withdraw the application before issue gets close.
4. The application amount (total bid amount) for IPO application will remain locked until allotment is done. An investor cannot withdraw the money in locking period.

Some related FAQs on ASBA:

Who are Self Certified Syndicate Banks (SCSBs) and how do I know if my bank has the facility to apply in an IPO using ASBA payment method?
Banks, which are certified by SEBI, allow retail individual investor to apply in IPO’s using ASBA payment method, are known as ‘Self Certified Syndicate Banks (SCSBs)’. SCSB’s has capability to block the IPO Application amount until IPO allotments are done. SCSB guarantee the Issuer Company for the blocked money and make sure that it’s not being used for any other purpose. Bids can be submitted online through Internet banking websites or by visiting the branch office of the bank. Once receiving the IPO Application from an investor, SCSB’s sends the bidding information to BSE/NSE electronically. After allotment, Issuer Company or the registrar of the IPO withdraw the required money from the bank account and unlock the remaining amount for investor to use immediately.

Detail process flow for ‘Applications supported by Blocked Amount (ASBA)’ payment Option.
1. Self Certified Syndicate Banks (SCSBs) accept retail individual investors bid for IPO Shares through Internet banking or at certain designated branches.
2. Investor receives the acknowledgement from the bank along with the IPO Application Number.
3. Bank blocks the amount in investor’s bank account for the IPO as applied and send the application information to the designated stock exchanges for that IPO. In case of insufficient amount in investor’s bank account, the bank can reject the IPO application and do not sent the bidding to stock exchanges.
4. Banks keep the physical forms or electronic date (in case of online IPO Application) for specified period of time.
5. IPO Registrar receives the final bidding information from stock exchanges soon after issue gets closed. ASBA applications are processed along with the other IPO applications.
6. IPO Registrar validates the bids and rejects the application that doesn’t match the application requirements.
7. Registrar completes the ‘Basis Of Allotment’ and gets it approved from stock exchanges.
8. Registrar sends request for money to SCSB’s to transfer money to escrow public issue account.
9. Registrar receives the money and transfers the allocated shares to investors Demat Account.

I do not have bank account with SCSB’s listed on SEBI website. Can I still apply in IPO’s using ASBA payment option?
To apply in an IPO using ASBA payment method, an investor should have account with SCSB. Even if your bank is listed as SCSB, only few of its branches may have ability to process IPO Applications with ASBA payment option. So one needs to contact the nearest branch to check if they have this facility available or not.

Will bank charge any additional fees from there customers if they choose ASBA IPO Payment Option?

List of SCSB is as under: (As on 12/09/08)
Name of the Bank
1. Corporation Bank
2. Union Bank of India
3. HDFC Bank
4. State Bank of India
5. ICICI Bank Ltd.
6. IDBI Bank
7. Axis Bank
8. State Bank of Bikaner & Jaipur
9. Bank of Baroda
10. Kotak Mahindra Bank

*This list will be updated on the 1st day and 15th day of each month

As of now, there is no information available if banks will charge additional fees from investors or from the issuer company to handle this process.

When the banks will need money in customers account to lock for ASBA payment option?
Bank will need the money in investor’s account at the time of placing the bid for IPO shares through ASBA payment option. SEBI has clearly instructed that banks will not accept IPO application before blocking the bidding amount (for ASBA process). The amount will remain locked until registrar / stock exchange request bank to release the fund either because the investor didn’t receive the allotment, IPO application got rejected or investor withdraw the IPO application.

Can an investor apply on ‘Lower Price Band’ using ASBA payment method?
No. In the current form of ASBA, retail individual investors can only apply at cut-off price to use ASBA payment option.

Key Highlights of IPOs and FPOs in the CY 2008

Ø The crash, and the subsequent volatility in the stock market, adversely hit Initial Public Offer (IPO) plans of many Indian companies. The CY 08 saw as many as 21 IPOs in the first three months of current year. Of which, 3 companies namely, Wockhardt Hospitals, Emaar MGF and SVEC constructions had withdrawn the IPOs due to weak market sentiments.
Ø The amount raised by the IPOs so far amounts to INR 165.72 bn. The year has not seen any Follow-on Public Offer (FPO) so far.
Ø Of the 14 listings 6 IPOs (42.86%) managed to debut with marginal premiums. However, last calendar year in the same corresponding period 17 (47.22%) IPOs, of the 36 listings debuted at premiums.
Ø The fortune of the primary market is closely linked with that of the secondary market, and there is a lag affects on the number of issues hitting the market and their listing premium vis-à-vis the sentiments of the broader market.
Ø The subscription levels also impact the returns of the investors of various categories. The QIBs also did not give a good response to the issues that came, apart from the two big issues that of Future Capital and Reliance Power. These two IPOs witnessed a subscription of 180.72 times and 82.61 times respectively. In case of Rural Electrification Corporation also, the QIB portion got subscribed 39.30 times.
Ø Talking about the NIB category, the maximum subscription seen in this category was in Reliance Power IPO (190.02 times). In the remaining IPOs this category just managed to get subscribe fully.

IPO Snapshot 2007

Ø The year 2007 had been another blockbuster year in the history of Indian IPO market with total capital raised reaching a whopping INR 442 bn from 96 IPOs and 3 FPOs over the year. This number surpassed the previous year’s amount of 190 bn and is the highest till date beating the earlier high of INR 305 bn in 2004.
Ø The year saw the largest issue of DLF with issue size of INR 92 bn.
Ø Interestingly, the IPOs were not concentrated to a few industries, but spread across the board with companies from 14 different industries.
Ø 16 construction companies contributed to the total of 108 IPOs that came in the CY07, raising approximately INR 151 bn as against INR 36.5 bn last year through 10 IPOs.
Ø 45 companies, out of 108 IPOs comprised of various mid-sized industries including that of agronomic seed industry, auto components industry, piping & plumbing, paper industry, gems & jewellery, etc. The issues were of small size but as the amount raised by the companies comprised of INR 63 bn.
Ø 3 companies came out with FPOs this year compared to 20 companies in 2006. However, the absolute amount raised through FPOs increased significantly from INR 45 bn in 2006 to INR 105 bn. FPOs (as a proportion of total funds mobilised) declined to 24% from 31% last year.
Ø 22 IPOs in 2007 were oversubscribed by over 50x with the highest over all oversubscription of 160x in Religare Enterprises.
Ø DLF was the largest IPO in 2007 mobilizing INR 92 bn and ICICI Bank came up with the largest FPO of INR 100.5 bn. It was RPL in 2006 that came out with the biggest IPO for INR 27 bn and Bank of Baroda with the largest FPO of INR 16.3 bn.
Ø The highest listing gain of 242% was witnessed in Everonn Systems India with over all over subscription of 144x, while the worst listing was seen by Broadcast Initiatives, at a discount of 41%.
Ø Orbit corp, Everonn Systems, and MIC Electronics, have created the maximum wealth for investors in 2007 while, Abhishek mills, House of pearl fashion, and Asahi Songwon Colors eroded maximum wealth.

2008: THE ROAD AHEAD

2008 is expected to see much action scheduled to take place in the primary market. As per sources, the issues pending with SEBI and other mega issues that are in pipeline are around 485 (nearly 419 IPO and 66 FPO). The primary and secondary markets are highly interdependent. The secondary market conditions play a significant role in the over-subscription and the listing premium that a stock commands. At the same time, Mega IPOs that suck liquidity from the markets at times result in lack of buyers/support in the markets. Surely, there are several pros and cons associated with the mega IPOs and FPOs. With the Indian economy growing at an average real GDP rate of around 8% p.a., many mid-sized businesses from different sectors have grown manifold. There has been a paradigm shift from a human intensive business to capital intensive business. Such an expansion in the scale of business certainly accentuates the requirement for funds. One can expect many IPO’s with few big ones being Jai Prakash Power Ventures Ltd. (INR 40 bn) and National Hydroelectric Power corp ltd. (INR 22 bn). Few other mega IPOs include BSNL and Sahara Infrastructure & Housing Ltd. In CY 08 mega FPO (rights issue) of INR 120 bn by State Bank of India is awaited. Other PSUs that are expected to come up with issue of shares (fresh issue or divestment or both) during the year include NTPC (INR 60 bn), HPCL (INR 50 bn), Coal India (INR 30 bn), and Gujarat State Petroleum Corp Ltd. (INR 40 bn).