The Indian IPO Market in Early 2008

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Case Details:

Case Code : BENV016
Case Length : 18 Pages
Period : 2006-2008
Pub Date : 2008
Teaching Note :Not Available
Organization : -
Industry : Financial Sector
Countries : USA

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction Contd...

The RPL IPO was oversubscribed by 73 times and collected a record Rs. 7,448 billion ($¹¹ 190 billion) from the market¹². However, although the RPL IPO was oversubscribed, it listed below its offer price on the stock exchange, causing many analysts to believe that the Indian IPO market was losing steam.

But when the IPO of the Rural Electrification Corporation Ltd. (REC)¹³ was fully subscribed, reportedly within 27 minutes of its opening¹⁴, it appeared as though their views had been incorrect. With choppy global markets, and the Indian stock market seesawing, analysts were of the opinion that the Indian IPO market too would be affected.

However, others were not too worried about the global factors as they felt that the success of the IPO market was more a function of domestic growth. The proposal of the Finance Ministry of the Indian government to pass legislation to increase the minimum public holding in all listed companies to 25 percent from the existing 10 percent, was expected to lead to a large number of companies coming up with public offerings in the coming months, possibly bringing buoyancy back to the primary market.

Background Note

The Indian primary market¹⁵ started picking up momentum in the 1980s, when a large number of companies came up with their IPOs (Refer Exhibit I for a note on IPOs). The modern securities market in India was the result of the capital market reform in 1991.

In 1992, the Securities and Exchange Board of India (SEBI) was established. In the early 1990s, many companies came up with public issues, and met with good response from investors. However, the security scam of 1992¹⁶ severely affected the primary market...

Excerpts >>

11] '$' refers to the US dollar in this case study.

12] "Reliance Power Maiden Issue Sets World Record," www.hindustantimes.com, January 19, 2008.

13] Rural Electrification Corporation Ltd. (REC) was a wholly-owned Government Company under the Ministry of Power, Government of India till March 12, 2008, when the company listed on the Bombay Stock Exchange. The GoI's share in the company came down to 81.82 percent post issue. (Source: http://recindia.nic.in)

14] "REC IPO: Gone in No Time," www.financialexpress.com, February 20, 2008.

15] The primary market is part of the financial market where enterprises issue their new shares and bonds. In primary markets, securities are bought by way of public issue directly from the company. In secondary market, shares are traded between two investors. (Source: www.sharemarketbasics.com)

16] The securities scam of 1992 involved the diversion of funds (especially the funds in the inter-bank market for government securities) to brokers for financing their operations in the stock markets. The scam was carried out by brokers with the help of top executives of some of the large nationalized banks, foreign banks, and other financial institutions. It resulted in misappropriation of funds of around Rs 35 billion and threw the money market as well as the stock market into disarray. (Source: Anuj Thakur, "Anatomy of Securities Scam," iimcal.ac.in)