CHAPTER-VII MARKETING OF PUBLIC ISSUES

CHAPTER-VII MARKETING OF PUBLIC ISSUES Issue management by merchant bankers mainly focuses on three basic functions viz, origination, underwriting and distribution of securities. Distribution services of lead managers include the activities and cost incurred in selling and delivering the securities to the investors. Along with performing the function as a bridge between the issuing company and the investors, merchant bankers also have to generate interest and build the confidence of the investors in the capital market. So distribution is a function of sale of securities to the ultimate investors. This service, managed by lead manager, is performed by brokers and dealers in securities who maintain regular direct contact with the ultimate investors. Merchant bankers make efforts for the promotion and marketing of the issue. They plan, co-ordinate and control the entire activities relating to public issues and direct different agencies to contribute to the successful marketing of securities. In India, lead managers do not own an issue before its distribution to general public. They simply underwrite and arrange the distribution through the underwriters. The liberalization and globalization of Indian capital market has widened the geographical and demographical range of investors. Now, issuing companies call the applications for their shares not only from domestic investors, but from the foreign investors. Similarly, efforts are on to include every strata of society in the list of investors. Advancement of technology in communication and data processing has posed a new challenge for the merchant bankers in the area of marketing of public issues. Today, merchant bankers need top care about being in the centre of information flow rather than in the centre of capital flow. The present chapter aims to study the responsibilities of lead merchant bankers regarding marketing of public issues, SEBI Guidelines on public issue advertisement and the response of the investors for the public issues of equity and debt instruments during the period under review. 7.1 Market Design of Public Issues The market design of public issues is provided in the provisions of the Companies Act, 1956. It deals with the issue, listing and allotment of securities. In addition to this, SEBI Disclosures and Investor Protection Guidelines, 2000 as 189

amended from time to time prescribe a series of disclosures about the issuing company, management, promoters, project, risk factors and eligibility norms for accessing the market. 7.1.1 Responsibilities of Lead Manager(s) in Marketing of Public Issue The process of marketing of securities in primary market starts with the preparation of prospectus. The success of public issue depends upon the excellent marketing techniques worked out by the lead manager. It covers the institutional and retail distribution capacity, equity research capability, retail distribution network, advertising strategies and international distribution capability. A general standardized methodology of marketing may not be ideal for all issues. It may be worked out on a case to case basis depending on the nature of public issues in hand. The responsibilities of lead merchant banker(s) for marketing of public issues may be summarized as under: (i) Deciding the time of floating the issue Timing of the public issue is an important decision taken by lead manager. It is an important marketing strategy and is a futuristic decision which involves the expected market conditions during the time of the issue. It is very strategic decision to determine the right time for the public issue. The main considerations with lead manager for deciding the time of issue include the present and probable future market conditions, research reports by financial analysts, clashing with mega issues, major economic and political events in the country and response of the investors to recent public issues. In the words of Ritter, Marketing timing ability of (lead manager) is manifested in the tendency for firms to issue after high market returns and before low market returns. 1 (ii) Appointment of Printers for issue stationery The printers are involved in the process of printing and distribution of issue related stationery. Merchant bankers maintain a list of approved printers and the company in consultation with the lead manager appoints printer after considering the cost and quality of service. Lead merchant banker is responsible to ensure the printing of prospectus, application forms, posters, brochures and other stationery. It must ensure itself the accuracy of statements made and application form and confirm that the prospectus is as per standard prescribed by the stock exchange. 1. Ritter, Investment Banking and Securities Issuance. 190

Main functions of the printer include the layout and design of the offer document, application form, printing of prospectus, application form, brochures etc. However, nowadays, a copy of the offer document is placed on the website of lead managers and syndicate members associated with the issue. A copy of prospectus is also made available on the website of SEBI. (iii) Dispatch and Distribution of Issue Material It is the duty of lead manager that the public issue offer document and other issue related material is dispatched to the designated stock exchange(s), brokers, underwriters, bankers to the issue etc. in advance as agreed upon. In case of rights issue, lead manager must ensure that the abridged letter of offer is dispatched to all shareholders at least three days before the date of opening of the issue. (iv) Appointment of Advertising Agency However sound the project is or the promoters of the issuer company are, the success of the public issue can be attributed to the advertising agency and its campaign for marketing the issue. Merchant bankers maintain a list of advertising agencies having experience and expertise in the publicity of public issues. Normally, merchant bankers call upon various agencies to make a presentation on their advertising and publicity strategy. Based on their presentation and further consultation, the advertising agency is selected. The Company decides on the size of the advertising budget in consultation with the lead manager. Then the advertising agency and lead manager draw up a publicity campaign. (v) Publicity Campaign The selected advertising agency is responsible for carrying on publicity campaign for wide distribution of public issue. It covers the preparation of all publicity material including prospectus, brochures, announcements, advertisements in the media, hoardings etc. Lead merchant banker plays a key role by helping the choice of media, determining the size and the publication in which the advertisement should appear. Along with print media, audio-visual media, hoardings, banners, posters, publicity campaign may also be carried through the followings: (a) Road Shows As a part of the marketing campaign, the issuer company may conduct road shows at various places. In a road show, the lead manager accompanied by a team of senior officials of the company hold conference and make presentation in order to shift the demand schedule for the company s security. 191

The groups of institutional investors, high net worth investors, brokers and sub-brokers attend the road show. The team makes a presentation about the issuing company and answers the questions raised by the participants. Through road shows, the company comes in face to face with investors and interacts with them. The points to be highlighted in the road shows cover the performance of the company, reputation of the promoters and the projects of the company. (b) Research Coverage Research coverage, forecasts and recommendations by financial analysts are important tools in the marketing of securities especially in the issue of equities. All reputed merchant bankers have their own research teams and they publish research reports about the IPOs in various financial dailies. (c) Press Conferences and Investors Conferences Press conferences for public issues are organized by advertising agency at different centres having concentration of investors. Sometimes, visits by selected members of the press are also organized to the issuing company and briefed about the importance of the project for wide publicity of the issue. Similarly, investors meetings are held at various cities where it is expected that their interest could be invoked in the public issue. Cities with stock exchanges are favourable centres for such meetings. Investors meetings are also arranged in foreign countries to create interest of NRIs in the public issue. (d) Network of Merchant Bankers Leading merchant bankers having specialization in the area of issue management have wide network to create investors interest in public issue. They maintain list of potential investors and generally have good links with qualified institutional investors and high net worth investors. Some merchant bankers have registered broking firms as their sister concerns having direct link with the investors. For example, Enam has a network of 5000 dedicated franchises, Karvy has 448 branches and 275 business associates scattered all over India, SBI Capital Markets and Kotak Mahindra Capital Company are the subsidiaries of banks having a network of branches. IDBI Capital Markets Ltd operates 192

through 25 branches and 10,000 sub brokers/ agents spread across the country. JM Morgan Stanley, DSP Merrill Lynch and HSBC Securities and Capital Markets (India) Ltd have worldwide network. Private merchant bankers like Edelweiss, Centrum and Allianz Securities have also wide network of sub brokers in India. 7.1.2 SEBI Guidelines on Issue Advertisement Disclosure and Investor Protection Guidelines issued by SEBI in 2000 as amended from time to time provide guidelines regarding advertisement for public issues. The lead merchant banker has been made responsible to ensure compliance with the guidelines on advertisement by the issuing company. As per SEBI guidelines, an issue advertisement should have the following features: It should be truthful, fair, and clear and should not contain any statement that is untrue or misleading. It should reproduce information contained in an offer document in full and disclose all relevant facts and not be restricted to select extracts relating to that item. It should be set forth in a clear, concise and understandable language. It should not contain statements which promise or guarantee rapid increase in profits. It shall not contain any information that is not contained in the offer document. It should not appear in the form of crawlers i.e. the advertisement which runs simultaneo`1usly with the programme in a narrow strip at the bottom of the television screen. No slogans, expletives or non factual and unsubstantial titles should appear in the issue advertisement of offer document. In case of issue advertisement on television screen (a) the risk factors should not be scrolled on the screen (b) the advertisement should advise viewer to refer to the red herring prospectus/ offer document for detail. No issue advertisement should be released without giving Risk Factors in respect of the concerned issue, provided that an issue opening/ closing advertisement which does not contain the highlights need not contain risk factors. 193

If any advertisement carries any financial data, it should also contain data for the past three years and include particulars relating to sales, gross profit, net profit, share capital, reserves, earning per share, dividend and the book values. All issue advertisements in newspapers, magazines, brochures and pamphlets containing highlights relating to any issue should also contain risk factors giving equal importance in all respects including the print size. No advertisement shall include any issue slogans or brand name for the issue except the normal commercial name of the company or commercial brand of the product already in use. No product advertisement of the issuer should contain any direct or indirect reference to the performance of the issuer during the period (a) commencing from the date of meeting of Board of Directors in which the issue is approved till the filing of draft offer document with the SEBI, and (b) the period commencing from the filing offer document with the SEBI till the date of allotment of securities. An advertisement should not be issued stating that the issue has been fully subscribed or oversubscribed during the period the issue is open for subscription, except to the effect that the issue is open or closed, (a) announcement regarding closure of the issue should not be made except on the last closing date, and (b) if the issue is fully subscribed before the last closing date as stated in the offer document, the announcement should not be made after the issue is fully subscribed and such announcement should also be made on the date on which the issue is to be closed. Announcement regarding closure of issue should be made only after the lead merchant banker is satisfied that at least 90% of the issue has been subscribed and a certificate has been obtained to that effect from the registrar to the issue. No incentive, apart from the permissible underwriting commission and brokerage, shall be offered through any advertisement to anyone associated with marketing the issue. In case there is a reservation for the NRIs, the issue advertisement should specify the same and indicate the place in India from where the individual NRI applicant can procure application forms. 194

7.1.3 Statutory Advertisements The following advertisements have to be statutorily released (1) Issue announcement advertisement at least 10 days before opening of the issue. This advertisement contains an abridged version of the prospectus. (2) Issue opening advertisement on the day of opening of the issue. (3) Issue closing advertisement on the day of closing of the issue. (4) The basis of allotment advertisement after finalization of allotment. 7.1.4 Lead Merchant Banker and Observance of Advertisement Code The lead manager to the issue is responsible to ensure strict compliance with the code of advertisement by the issuer company set out above and for that purpose the lead manager should comply the following: (1) To obtain undertaking from the issuer as part of Memorandum of Understanding to be entered into by the lead merchant banker with the issuer company to the effect that the issuer company shall not directly or indirectly release, during any conference or at any other time, any material or information which is not contained in the offer document. (2) To ensure that the issuer company obtains approval in respect of all issue advertisements and publicity materials from the lead merchant banker responsible for marketing the issue and also ensure availability of copies of all issue related materials with the lead merchant banker at least till the allotment is completed. (3) With respect to research reports, the lead merchant banker shall ensure that it is prepared only on the basis of published information as contained in the offer document and the advertisement code is observed while circulating the research report and that the risk factors are reproduced wherever highlights are given, as in case of an advertisement. 7.1.5 Recent Marketing Strategies for Public Issues Marketing strategies adopted for public issues aim at educating the investors for active participation in capital market and reducing the cost of issue as also the risk of investors and the issuer companies in the form of overpricing and under pricing respectively. With these objectives in mind, marketing strategies are developed from 195

time to time to make Indian capital market more efficient. Some of the recent marketing strategies adopted in new issue market in India are as follows: (i) Marketing IPOs through Secondary Market ( e-ipo) SEBI has approved a proposal of marketing IPOs through the stock exchange. The system uses the existing infrastructure of stock exchange (terminals, brokers and system) being used for secondary market transactions for marketing IPOs through book building route. A company proposing to issue capital to public through on-line system of stock exchange has to comply with section 55 to 68 A of the companies Act, 1956 and DIP Guidelines of SEBI. The on-line IPO system is designed to reduce information asymmetry between bidders and allows the underwriters to aggregate orders and build the book. The bidding begins simultaneously in several cities. The investors can see all the other bids placed on the issue. The demand for the new issue is visible in real time to all bidders on their computer screens and also available on the National Stock Exchange (NSE) website. This new internet based IPO offering system is known as NEAT- National Exchange Automated Trading. On-line IPO system at NSE was launched with the book building issue of Hughes Software Ltd in September, 1999 and got a good public response. Till March, 2007, a total of 199 issuer companies have used this NSE on-line IPO system. Subsequently, the BSE also augmented its traditional book building offering mechanism with an internet based bidding system, very similar to the NEAT-IPO mechanism. This system reduces the cost of the issue as well as time for listing of securities. The lead manager is responsible for co-ordination of all the activities among various intermediaries connected to the issue/ system. The names of brokers appointed for the issue along with the names of other intermediaries should be disclosed in the offer document and application from. (ii) Green Shoe Option (Over Allotment of Securities) The green shoe option is the most useful tactic strategy in an unanticipated bull market. In a volatile market with little strong direction, provision of over allotment is basically the best marketing device. The lead manager offers added securities to syndicate members/ brokers with the expectation that they will put forth a strong sales effort. 196

In India, provisions for green shoe option are stated in DIP Guidelines under chapter VIII-A. It states that the issuing company shall appoint one of the merchant bankers/brlms from among the issue management team, as the Stabilization Agent (SA), who will be responsible for the price stabilization process, if required. The SA shall enter into an agreement with the issuing company, prior to filing of offer document with SEBI, clearly stating all the terms and conditions relating to this option including the charges/expenses to be incurred by SA for this purpose. The SA shall also enter into an agreement with the promoters or pre issue shareholders who will lend their shares under the provisions of this chapter, specifying the maximum number of shares that may be borrowed from promoters or the shareholders, which shall not be in excess of 15% of the total issue size. During the period of study, a number of issuing companies has availed of this option. ICICI Bank is the first company to use this option for the public issue of equity shares of Rs. 3050 crore in April, 2004. (iii) Safety Net (Buy Back of Shares) Safety net is the protection to investors against the fall in the market price of the IPO below its offer price during a particular period of time. Promoters and merchant bankers provide standby arrangement to buy shares from public if the market quotations go below the offer price during the statutory period. Safety net aims at wooing more and more potential investors to subscribe for the IPOs. This mechanism helps the advertising agency to the issue and the lead merchant banker in its campaign for marketing the IPOs. So safety net is actually a put option given to the investors, but not by the issuing company. It gives the right but not the obligation to the investors to sell the shares to the entity offering the option at a particular price within a stipulated period. Any safety net or buy back arrangement of shares proposed in any issue should be finalized by the issuing company with the lead merchant banker in advance and should be disclosed in the offer document. Bangalore based Software Company Opto Circuits Ltd offered a safety net to its shareholders for six months in its IPO. Other companies which offered safety net mechanism during the period under review included TCS Ltd, Shree Renuka Sugars Ltd and ICICI Bank. 197

(iv) Target Marketing/ Branding the financial Instrument Lead merchant bankers have been using the strategy of targeting the different segments of investors in the market and branding the securities to create interest of the investors in the public issues. Different innovative financial instruments have been witnessed in the Indian capital market especially after post reform period. Some of the new financial instruments are Zero Coupon Bonds, Deep Discount Bonds, Third party Convertible Debentures, Zero Coupon Convertible Note, Tax Saving Bonds, Cumulative Convertible Preference Shares, Convertible (Partly and Fully) Debentures, Debt for Equity Swap, Floating Rate Bonds etc. During the period under review, bond issues of two financial Institutions namely ICICI Ltd and IDBI Ltd dominated the debt issues in India. ICICI Ltd raised an aggregate amount of Rs.18876.62 crore from 41 debt issues of Bonds. These unsecured bonds were branded as ICICI Safety Bonds. To target the different classes of investors, the bonds were classified as: (a) Tax Saving Bonds The issue of these bonds aimed at that segment of investors who wanted to save tax. (b) Regular Income Bonds- These were aimed at investors from middle class and retired persons. (c) Money Multiplier Bonds These bonds targeted long term investors requiring secured income. (d) Child Growth Bonds These were long term bonds with 16 to 19 years maturity period suitable for young investors to secure the future of their children. Different options were given to the investors under each category of bonds. JM Morgan Stanley performed the leading role as lead manager to these bond issues with a group of other merchant bankers in the role of lead managers and co-managers. Similarly IDBI Ltd came out with 21 public issues of bonds by raising an aggregate amount of Rs. 17323.38 crore during this period. The bonds issued by the IDBI Ltd were branded as IDBI FLEXIBLE BONDS. Different types of bonds targeted different types of investors like: (a) IDBI Regular Income Bonds These bonds provided fixed rate of interest payable annually or bi-annually. 198

(b) IDBI Growing Interest Bonds These bonds provided increasing rate of interest with the passage of time. (c) IDBI Multiplier Bonds Bonds on which Lump sum amount was payable at the end of maturity period, that is, 6 years and 7 months. (d) IDBI Infrastructure (Tax Saving) Bonds Bonds with annual interest option and cumulative option. These bond issues were lead managed by a group of merchant bankers acting as lead managers and co-managers with SBI Capital Markets Ltd at the apex. 7.2 Public Response to Public Issues The result of extensive campaign for marketing of public issues is the ultimate response by the public for subscription of shares. The reputation of lead merchant banker (s) as an issue manager is at stake in this respect. If the issuing company is not able to get public subscription to the extent of 90% of total issue size, the issue has to be withdrawn and the money received on applications is refunded. This adversely affects the reputation not only of the issuing company, but the lead merchant banker also. Since the period of economic reforms in India, the primary capital market has been witnessing a structural transformation. Liberalization and globalization has resulted in the widening and deepening of the market. The number of investors as well as the financial instruments has increased. Public response to capital issues is the indication of the confidence of the investors in the primary market, thus leading to the development of the capital market. This part of the chapter analyses the trends of public response to the public issues of equity and debt instruments. In this section, number of public issues subscribed at different levels, mean annual subscription ratio and the subscription ratio of public issues managed by different merchant bankers during the period 1997-98 to 2008-09 has been analysed. 7.2.1 Public Response to Equity Issues New issue market for equity shares witnessed several ups and downs with respect to response from public. Subscription by public to new issues depends upon a number of factors and the major factor is the developments in the secondary market of shares. 199

7.2.2 Overview of Subscription Level of Public Issues of Equity Shares Annual public response to equity issues at various levels of subscription has been presented in the table 7.1 Table depicts the number of public issues of equity shares along with percentage to total annual issues subscribed by public at different levels of subscription. As shown in the table, primary market in 1997-98 showed a dismal picture as far as the subscription of public issues is concerned. Out of 58 equity issues floated during the year, 12 issues (20.68%) were subscribed less than one time while 39 issues (67.24%) were subscribed between one and 1.5 time. Only three issues could get subscription of more than three times. Depressed secondary market conditions during 1993-95, stringent entry barriers guidelines issued by SEBI and decline in industrial growth have been the major reasons for the lack of investors interest in the primary market. Introduction of free pricing of public issues led to fair pricing of issues. This resulted in decline in under pricing/ returns on listing and had an adverse effect on the subscription of shares by the general public. Declining trend of 1997-98 continued in 1998-99 also. Out of 22 public issues of equity floated during the period, seven issues (31.81%) were subscribed less than one time and subscription to 9 issues (40.91%) was more than one time but less than 1.5 times. Only one issue was found to have got subscription over 25 times and another one got in the range of 10 to 25 times. A favourable response to the primary equity market has been found from the public in 1999-2000. This has been the period of information technology and software boom. Out of 56 equity issues in this year, as many as 8 issues (14.28%) were subscribed more than 100 times and another three (5.36%) were subscribed between 75 to100 times. Further, 11 issues (19.64%) were subscribed between 10 to 25 times. During the year 2000-01, although there was a rush in the new issue market of equity shares from information technology companies with small size, but investors did not respond well to these issues. A total of 52 issues (45.21%) were subscribed in the range of 1.00 to less than 1.5 times. Only 8 issues (6.95%) were subscribed over 10 times during 2000-01. Crash in secondary market in April 2000, and overvaluation of information technology companies and media industry were the major cause for investors lack of interest in primary market during this year. As many as five companies have to refund the application money to investors for lack of minimum subscription and two equity issues partially devolved upon the underwriters during this year. 200

Table 7.1 Extent of Oversubscription of Public Issues of Equity No. of times Issue Subscribed Below 1.00 times 12 07 23 02 01 - (20.68) (31.81) (20.0) (33.33) (16.67) 1.0 to <1.5 39 09 01 52 02 05 02 - (67.24) (40.91) (1.78) (45.21) (33.33) (17.24) (6.90) 1.5 to <3.00 04 03 04 18 01 02 04 01 (6.89) (13.64) (7.14) (15.65) (16.67) (33.33) (13.79) (3.45) 3.00 to < 5.00 01 01 05 07 01 01 02 01 (1.72) (4.54) (8.93) (6.08) (16.67) (16.67) (6.90) (3.45) 5.00 to <10.00 01 09 07 01 08 06 - - (1.72) (16.07) (6.08) (16.67) (27.59) (20.68) 10.00 to < 25.00 01 01 11 03 01 05 08 - (1.72) (4.54) (19.64) (2.61) (16.67) (17.24) (27.59) 25.00 to< 50.00-01 07 04 05 08 - - (4.54) (12.50) (3.48) (17.24) (27.59) 50.00 to <75.00 - - 07 01 02 - - - (12.5) (0.87) (6.90) 75.00 to< 100 - - 03 01 - - - - (5.36) (3.45) Above 100 times - - 08 (14.28) - - - - - Total 58 22 55 115 06 06 29 29 (9.38) (3.56) (8.90) (18.61) (0.97) (0.97) (4.69) (4.69) Note: -Figures in parentheses show the percentage of total public issues of equity at different levels of subscription. Source: - Compiled from offer documents, basis of allotment, Prime Database. 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Total - - - 01 (0.98) 12 (11.76) 14 (13.73) 16 (15.69) 26 (25.49) 29 (28.43) 02 (1.96) 01 (0.98) 01 (0.98) 102 (16.50) 01 (1.18) 13 (20.68) 17 (20.0) 10 (11.76) 13 (15.29) 08 (7.84) 14 (16.47) 05 (5.88) 02 (2.35) 02 (2.35) 85 (13.76) 03 (3.33) 13 (14.44) 12 (13.33) 10 (11.11) 11 (12.22) 05 (5.55) 16 (17.78) 09 (10.0) 05 (5.55) 06 (6.67) 90 (14.56) - 11 (52.38) 03 (14.28) 03 (14.28) 02 (9.52) 01 (4.76) 01 (4.76) - - - 21 (3.40) 49 (7.92) 148 (23.94) 81 (13.11) 56 (9.06) 74 (11.97) 70 (11.32) 85 (13.75) 26 (4.20) 12 (1.94) 17 (2.75) 618 (100.0) 201

Investment activities in the primary market of equity remained subdued in the years 2001-02 and 2002-03 also. Only six equity issues in each year were floated. Subscription level in 2001-02 showed that all the six issues were subscribed below 5.00 times while only one was subscribed above 10 times. The year 2003-04 witnessed an upsurge in primary market activities. It was induced by buoyant secondary market, political stability and economic recovery. 8 equity issues (27.59%) of total 29 issues were subscribed 5 to 10 times by the public while 10 issues (34.48%) were subscribed more than 10 times. However, one issuing company had to refund application money due to lack of minimum subscription during this year. Continuing the same trend, response to equity issues was good in 2004-05. Of the 29 equity issues floated, 8 issues (27.59%) were subscribed more than 10 times but less than 25 times whereas subscription to another 8 issues was found in the range of 25 to 50 times. One equity issue was subscribed even more than 75 times. In 2005-06, 29 issues ( 28.43%) were subscribed between 25 times to 50 times while 26 issues ( 25.49%) were found to have been subscribed between 10 to 25 times. One equity issue was subscribed even in the range of 75 to 100 times and another one was subscribed more than 100 times. Active participation of Foreign Institutional Investors (FIIs), Qualified Institutional Buyers (QIBs), strong fundamentals of economy, positive investment climate and buoyant secondary market induced public to participate actively in the primary market activities during 2005-06. Favourable response to public issue of equity during 2005-06 continued in 2006-07 and also. However, 14 issues (16.47%) failed to elicit much response from the public (less than 1.5 times). 17 equity issues (20%) were subscribed 1.5 times to 3.00 times, while another 14 issues (16.47%) were subscribed in the range of 25 to 50 times and two equity issues were subscribed more than 100 times. Similarly in 2007-08, five issues (5.55%) were subscribed between 75 to 100 times and another six issues (6.67%) got more than 100 times subscription. Primary equity market could not sustain the same trend in 2008-09 and 11 (52.38%) out of total 21 issues were subscribed less than 1.5 times while another three issues got subscription between 3 to 5 times. Only one issue could reach to subscription level of 25 to 50 times. 202

7.2.3 Subscription by Retail Investors vis-à-vis All Categories of Investors Table 7.2 depicts the response from the retail vis-à-vis all categories of investors to the public issue of equity shares during the period under review. As is clear from the table, mean value of over subscription by all categories of investors was highest (44.33 times) in 1999-2000. It was followed by mean subscription of 28.56 times in 2007-08 and 22.79 times in 2004-05. Investors also responded favourably to the public issues of equity shares in 2005-06 and 2006-07, when average of the shares subscription has been 19.80 and 18.28 times respectively. On the other hand, investors did not respond well to equity issues in 1997-98 and 2001-02, when mean subscription ratio was just 1.47 and 1.42 times respectively. Even the number of public issues has been only six each in the year 2001-02 and 2002-03. Thus, the response from the public was very dismal. The table also shows the co-efficient of variation in the subscription ratio of different equity shares floated during the particular year. A high co-efficient of variation (229.30%) has been found in 2000-01 showing high dispersion in the subscription level of 115 equity issues during the year. This has been followed by 223.54% in 1998-99. Co-efficient of variation has been minimum (91.88%) in 2004-05, depicting less variation in the subscription level of public issues of equity. While a high standard deviation of 58.97 has been found in the subscription level of different equity issues in 1999-2000, the same has been only 1.42 in 2001-02. It showed that the issues have been subscribed evenly during the year. The analysis further shows that good response has been received from the retail investors in the year 1999-2000 who subscribed 30.12 times to the equity issues in that year. This was followed by 19.89 and 16.57 times in 2004-05 and 2005-06 respectively. On the other hand, retail investors have not responded well in 1997-98 and 2001-02, when mean subscription was only 0.71 and 0.45 times respectively. A high variation in the subscription ratio by retail investors, as shown by coefficient of variation was found in 1998-99 and 1997-98 which stood at 195.82% and 163.38% respectively. It means retail investors have different response level for good and average issues. 203

Table 7.2 Subscription Ratio of Public Issue of Equity Shares by Retail Investors and by All Categories of Investors Years No. of issues Retail Investors Mean S.D. Co-efficient of variation All Categories of Investors Min. Max. Mean S.D. Co-efficient of variation 1997-98 58 0.71 1.16 163.38 0.01 6.19 1.47 1.85 125.85 0.9 13.3 1998-99 22 3.11 6.09 195.82 0.01 22.04 4.29 9.59 223.54 0.9 41.71 1999-00 56 30.12 35.68 118.46 0.01 180.37 44.33 58.97 133.02 1 283.5 2000-01 115 2 3.58 179 0.11 25.43 3.95 9.06 229.36 0.92 57.93 2001-02 6 0.45 0.56 124.44 0.05 1.45 1.42 1.42 100 0.97 4.29 2002-03 6 2.38 2.83 118.91 0.18 7.93 4.85 5.21 107.64 0.99 15.06 2003-04 29 8.13 10 123 0.12 40.63 12.97 13.06 100.69 1.03 42.76 2004-05 29 19.89 21.44 107.79 0.5 70.64 22.79 20.94 91.88 1.12 80.97 2005-06 102 16.57 26.5 159.92 0.21 82.82 19.8 22.81 115.2 1.72 175.88 2006-07 85 7.47 9.56 127.98 0.17 52.76 18.28 25.08 137.2 0.95 113.93 2007-08 90 14.41 21.7 150.58 0.24 136.82 28.56 37.02 129.62 0.91 159.4 2008-09 21 6.33 11.25 155.72 0.19 44.82 4.72 7.6 161.02 1.02 32.04 Source: - Compiled from offer documents, Basis of allotment, SEBI website and Prime Database. On the other hand, the co-efficient of variation in the subscription ratio has been the minimum in 2004-05. Further, a high response to individual equity issues from retail investors was found in 2005-06, when public issue by Educomp Solution was subscribed by 211.52 times. It was managed by SBI Capital Markets and Karvy Investors Services Ltd. Similarly, a public issue of equity by Cinevista Communication Ltd managed by DSP Merrill Lynch was subscribed by 180.37 times by retail investors in 1999-2000. Annual mean subscription ratio by retail investors and by all categories of investors has also been presented in the Chart 7.1 Min. Max. 204

Chart 7.1 7.2.4 Merchant Bankers wise Analysis of Subscription to Public Issues of Equity Shares Response from the public to the equity issues managed by different merchant bankers during the period under review has been analysed in table 7.3 and 7.4. The merchant bankers for this purpose have been classified into two groups, that is, top merchant bankers who managed 20 and above equity issues and the others managing between 5 to 19 equity issues individually and jointly during the period under review. 7.2.4.1 Merchant Bankers Managing Twenty and above Equity Issues A total of 14 merchant bankers as revealed in the table 7.3 have been found to have managed 20 and above public issues of equity issues individually and jointly with other lead merchant bankers. These merchant bankers have been found to have participated in the public issue management activities during all the twelve years of period under review. It has been found that equity issues managed by Enam Financial Services got the highest response from the public. Mean subscription to the equity issues managed by this lead manager was 33.26 times. This was followed by Kotak Mahindra Capital Company with mean subscription level of 27.34 times from 81 equity issues managed by it individually and jointly with other lead managers. Similarly mean subscription ratio of equity issues managed by ICICI Securities Ltd. and Karvy Investor Services Ltd stood at 21.03 and 21.08 times respectively. On the other hand, 24 equity issues managed by Aryaman Financial Services Ltd. got average subscription of 1.81 times 205

only, while the 20 equity issues managed by IDBI Ltd and IDBI Capital Markets had mean subscription of 6.87 times. The table further reveals that high variation in the public response to different equity issues has been found in case of issues managed by Keynote Corporate Services, Centrum Finance and IDBI Ltd and IDBI Capital Markets Ltd. Co-efficient of variation in the subscription of issues managed by Keynote Corporate Service, Centrum Finance and IDBI Ltd and IDBI Capital Markets stood at 242.42%, 222.24% and 221.25% respectively. Least variation (99.28%) was found in the subscription of equity issues managed by Enam Financial Services. On the basis of standard deviation of subscription levels of equity issues also, a high dispersion was found in the subscription of issues managed by Keynote Corporate Services, Allianz Securities and Kotak Mahindra Capital Company Ltd. The table further reveals that equity issues managed by karvy Investor Service, Enam Financial Services and Centrum Finance Ltd found good response from retail investors. Mean subscription of equity issues managed by these merchant bankers has been found at 19.34, 14.75 and 13.74% times respectively. On the other hand, equity issues managed by Aryaman Financial Services, IDBI Ltd, IDBI Capital Markets and JM Morgan have not been responded favourably by retail investors. Aryaman Financial Services Ltd. has been active in issue management during the initial years of period under review, especially during 2000-01. There has been a moderate response from retail investors to the equity issues managed by DSP Merrill Lynch, ICICI Securities and IL&FS Investsmart etc. High degree of standard deviation and co-efficient of variation has been found in the retail investors subscription of the issues managed by DSP Merrill, SBI Capital Markets and Centrum Finance Ltd. It shows the high variation in the response from retail investors to different public issues managed by these merchant bankers. 206

S. No. Merchant Bankers Table 7.3 Subscription Ratio of Equity Public Issues Managed by Different Merchant Bankers (Merchant Bankers Managing 20 and Above Equity Issues) No. of issues Retail Investor Mean S.D. Co-efficient of variation (%) All Categories of Investors Min. Min. Max. Mean S.D. Co-efficient of variation (%) Max. 1. Enam financial Services. 86 14.75 18.8 127.45 0.13 90.76 33.26 33.02 99.28 0.99 131.8 2. Kotak Mahindra Capital Co. 81 10.47 15.13 144.51 0.19 80.32 27.34 33.07 120.95 1.48 115.32 3. SBI Capital Markets. 68 12.57 28.54 227.04 0.18 211.52 17.49 26.86 153.57 0.9 115.32 4. J.M. Morgan Stanley. 68 7.79 10.47 134.4 0.02 50.76 20.36 27.47 134.92 0.99 131.8 5 ICICI Securities. 62 9.71 12.31 126.77 0.01 45.72 21.03 24.77 117.78 0.9 115.32 6 DSP Merrill Lynch. 58 8.89 23.82 267.94 0.21 180.37 20.45 26.38 128.99 1.44 115.32 7. Karvy Investors. 41 19.34 35.15 181.74 0.44 211.52 21.08 25.58 121.34 0.9 114.11 8. UTI Securities Exchange 37 12.91 16.45 127.42 0.18 83.96 14.39 17.87 124.18 0.91 83.96 9. Keynote Corporate. 27 13.1 23.83 181.91 0.61 106.02 14.71 35.66 242.42 0.99 173.75 10. Aryaman Financial. 24 1.5 4.29 286 0.21 21.5 1.81 3.02 166.85 0.93 15.9 11. IL&FS Investsmart 20 9.74 9.75 100.1 0.22 34.74 16.43 16.95 103.16 1.45 54.85 12. IDBI, IDBI Capital Markets 20 4.85 9.28 191.34 0.01 36.69 6.87 15.2 221.25 0.9 61.49 13. Allianz Securities 20 12.07 20.66 171.68 1.05 81.92 17.96 38.88 216.48 0.95 175.88 14. Centrum Finance 20 13.74 30.15 219.43 0.49 136.82 14.61 32.47 222.24 0.98 145.57 Note: - No. of issues refers to the public issues of equity managed by respective lead merchant banker individually and jointly with other lead managers. Source: - Compiled from offer documents, Basis of allotment, SEBI website and Prime Database. 207

Chart 7.2 also shows the mean subscription ratio of equity issues managed by different merchant bankers (managing 20 and above equity issues) during the period under review. Chart 7.2 7.2.4.2 Merchant Bankers Managing 5 to 19 Equity Issues Small sized merchant bankers, who occasionally participated in the services of public issue management has been shown in table 7.4 A good public response to the equity issues managed by UBS Securities, Citigroup Global, Systematic Global Edelweiss Capital and SWIFS Capital Markets has been found from the analysis of mean subscription ratio of all categories of investors.. Average subscription ratio for the equity issues managed by these merchant bankers stood at 68.55, 44.68, 33.32, 26.59 and 25.47 times respectively. However, UBS Securities participated as lead manager only during 2007-08 when primary market witnessed boom conditions and public response to equity issues was highly favourable. On the other hand, the equity issues managed by Financial and Management Services, Ashika Credit, BOB Capital Markets and SREI Capital Markets could not find much favour from the investors. Equity issues managed by Financial & Management Services could secure subscription of only 1.2 times while the average subscription to 9 equity issues managed by BOB Capital Markets stood at 7.11 times. Financial & Management Services Ltd. participated in the initial years of study period only when primary market was in depression. 208

Table 7.4 Subscription Ratio of Public Issue of Equity Shares Managed by Different Merchant Bankers (Merchant Bankers Managing 5 to 20 Equity Issues) S. No. Merchant Bankers No. of issues Mean S.D. Retail Investors Co-efficient of variation Min. Max. Mean S.D. All Categories of Investors Co-efficient of variation Min. Max. 1 Citigroup Global 17 11.85 21.04 177.55 0.21 90.56 44.68 41.42 92.7 3.1 159.4 2 Anand Rathi Securities. 16 11.73 15.88 135.38 0.62 58.54 13.38 16.23 121.3 1.34 59.85 3 Ashika Credit. 15 2.3 4.83 210 0.24 19.52 3.31 7.63 222.36 0.94 29.87 4 Edelweiss Capital 13 12.94 10.69 82.61 0.13 30.42 26.59 18.54 69.72 1.05 57.51 5. Fedex Securities. 12 8.97 25.11 279.93 0.19 88.14 23.13 70.96 306.78 0.98 248.23 6. SWIFS Capital Markets 10 17.64 21.31 120.8 0.24 63.95 25.47 29.36 115.27 0.92 83.37 7. Canara Bank 09 9.51 8.46 88.96 0.13 25.43 16.21 18.42 113.63 1.00 47.72 8. Micro Securities 09 14.53 26.36 181.42 0.12 82.82 14.99 25.04 167.04 1.03 77.35 9. BOB Capital Markets. 09 6.19 7.85 126.82 0.02 18.58 7.11 8.73 122.78 1.00 22.95 10. Financial & Mgt. Services 09 0.49 0.28 57.14 0.24 1.12 1.2 0.51 42.5 1.00 2.56 11 SREI Capital Markets 09 9.6 10.07 104.9 1.00 15.51 9.07 9.59 105.51 1.06 28.29 12 Systematic Global 07 21.81 30.12 138.1 0.18 84.44 33.32 50.66 151.71 0.99 143.07 13 Nagarjuna 07 15.49 16.73 108 0.05 30.47 21.22 24.34 114 0.97 57.43 14 HSBC Securities 07 5.99 5.56 92.82 1.64 14.9 22.27 19.54 87.74 4.36 51.22 15 UBS Securities 06 21.39 21.63 101.12 0.9 50.76 68.55 47.92 69.9 3.3 131.8 16 Ind Global Corporate 05 5.34 4.78 89.51 0.9 12.6 10.79 14.85 137.62 1.09 36.76 Note: - No. of issues refers to the public issues of equity managed by respective lead merchant banker individually and jointly with other lead managers. Source: - Compiled from offer documents, Basis of allotment, SEBI website and Prime Database. 209

A high variation has been noticed in the co-efficient of variation and standard deviation in the subscription ratio of equity issues managed by Fedex Securities, Ashika Credit and Micro Securities. On the other hand, subscription to equity issues managed by Financial & Management Services, UBS Securities, Citigroup Global, HSBC Securities & Capital Markets and Anand Rathi Securities has been found to be more consistent as shown by low co-efficient of variation and standard deviation. The table further shows the response from Retail Investors to the equity issues managed by different merchant bankers. A high mean subscription (signifying good response from retail investors) has been found in case of issues managed by Systematic Global (21.81times), UBS Securities (21.39%), SWIFS Capital Markets (17.64 times) and Nagarjuna (15.49 times). The merchant bankers with low retail investors response to their equity issues again included Financial & Management Services (0.49 times), Ashika Credit (2.30 times) Ind Global (5.34 times) and HSBC Securities & Capital Markets (5.99 times). With respect to retail investors response also, a high co-efficient of variation has been found in the subscription to equity issues managed by Fedex Securites ( 279.93%), Ashika Credit (210%), Micro Securities (181.42%) and Citigroup Global (177.55 %). A more consistency in subscription ratio by retail investors was found in the equity issues managed by UBS Securities, SREI Capital, Nagarjuna, HSBC Securities & Capital and Ind Global. Co-efficient of variation in subscription to public issue of equity shares managed by these merchant bankers stood at 101.12%, 104.9%, 108%, 92.82%and 89.51% respectively. Mean subscription ratio of equity issues managed by different merchant bankers (managing less than 20 equity issues) during the period under review has also been highlighted in chart 7.3 210

Chart 7.3 7.3 Public Issues of Equity with Highest Subscription Year wise highest oversubscription to the public issues of equity during the period of study has been depicted in table 7.5. A small size issue of Sankhya Infotech Ltd. managed by Canara Bank was oversubscribed by 283.50 times in 1999-2000. Similarly another IT company, FCS Software Solutions Ltd. got favourable response from the investors and its equity issue was subscribed by 175.88 times. The equity issue of Sobha Developers (Real Estate Company) was also subscribed by 113.93 times in 2006-07 while the equity issue by Religare Enterprise Ltd got 159.40 times subscription from investors in 2007-08. Table further shows the comparatively low response to the public issues from the investors in 1997-98, 2001-02 and 2002-03. Highest subscription in 2001-02 was only 4.29 times to the maiden public issue of Rs. 164.49 crore by Punjab National Bank. Similarly in 1997-98, the IPO of another public sector bank, Corporation Bank was oversubscribed by 13.30 times which was the highest subscription during the year. In 2008-09, the highest subscription ratio (32.04 times) was found in the equity issue by Avon Weighing Systems Ltd which was lead managed by Keynote Corporate Services. Highly oversubscribed equity issues also got maximum response from the retail investors as well. The issue of Sankhya Infotech Ltd. was found to have been subscribed by 92.15 times by retail investors. This was followed by 81.92 times over subscription to the public issue made by FCS Software Solution Ltd. in 2005-06. 211

Table 7.5 Public Issues of Equity Shares with Highest Total Subscription Year Issuer Company Issue Date Issue Size ( Rs. in crore) 1997-98 Corporation Bank Oct. 03, 1997 1998-99 KPIT Systems Ltd. Feb. 02, 1999 1999-00 Sankhya Infotech March 23- Ltd. 27, 2000 2000-01 Vantel Technologies April 06- Ltd. 09, 2000 2001-02 Punjab National March 21- Bank 28,2002 Over Subscription (No. of times) Retail Investors Over subscription (No. of times) All Investors Lead Manager(s) 304.00 6.19 3.30 ICICI Sec., IDBI Bank, SBI Caps, DSP Merrill Kotak Mahindra, JM Financial. 11.61 22.04 41.71 Enam Securities. 1.67 92.15 283.50 Canara Bank 1.57 15.37 57.93 Karvy Investors, Ask Raymond 164.49 1.45 4.29 ICICI Securities, SBI Caps, DSP Merrill, Kotak Mahindra 2002-03 Divi Laboratories Feb. 17-44.86 7.93 15.06 IL&FS Investsmart, 21,2003 Kotak Manindra 2003-04 Power Trading March 01-93.60 40.63 42.76 SBI Caps, Corporation 08, 2004 Enam Securities 2004-05 Spanco Nov. 01-7.53 66.97 80.97 Keynote Corporate Telesystem Ltd. 08, 2004 Services 2005-06 FCS Software Aug. 22-17.50 81.92 175.88 Allianz Securities Solutions Ltd. 26, 2005 2006-07 Sobha Developers Nov. 23-569.17 20.48 113.93 Kotak Mahindra, Ltd. 27, 2006 Enam Securities 2007-08 Religare Oct.19-140.16 90.76 159.40 Enam Securities Enterprise Ltd. Nov. 1, 2007 Citigroup Global. 2008-09 Avon Weighing June 9-12, 9.83 44.82 32.04 Keynote Corporate System Ltd. 2008 Services. Source: - Compiled from offer documents, Basis of Allotment. Retail investors poor interest was found in the public issues made by public sector banks at different points of time. Punjab National Bank and Corporation Bank, although the highest subscribed equity issues in different years, got 1.45 and 6.19 times subscription respectively from retail investors in 2001-02 and 1997-98. Kotak Mahindra Capital Company and Enam Securities, as lead managers, were found to have participated in four highest subscribed public issues of equity each. This was followed by SBI Capital Markets Ltd in the management of three highest subscribed equity issues. Four of the twelve of these equity issues were managed by individual lead managers while eight issuers appointed multiple lead merchant bankers to manage these issues. 212