Page 29 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes Table 2.6

Industry No. of firms Sum Raised ( crore) % of Total
`
IT & ITES 28 72400 10.7
Financial Services 21 216700 25.0
Infrastructure 39 370200 42.7
Pharmaceuticals & Biotechnology 9 11700 1.3
Telecom & Media 28 72500 8.4
Manufacturing 40 50100 5.8
Consumer goods & services 14 37900 4.4
Miscellaneous 13 15400 1.8
Total 192 867400 100.0

Source: Based on the data for period January 1999-March 2007.
2.5 Mode of Distribution of New Issues

In India, methods commonly employed by companies to raise funds from the market are pure
prospectus, offer for sale, private placement, rights issues, over-the-counter placement and
stock option. In 1995, the SEBI introduced the concept of book building. Similarly, the SEBI
introduced since September, 1995 compulsory 'market making' on the exchanges in the case of
public issues below ` 5 crore.
Table 2.7 embodies information about mobilization of funds by Indian companies through
prospectus and rights and private placement. It may be noted from the table that Indian corporate
sector relies heavily on domestic private placement market, obviously to derive certain
advantages like lower transaction costs limited disclosure requirements in the offer documents
and mobilization of funds in a shorter time frame. Thus, in 1999-2000, private placement accounted
for 89 percent of total resources mobilized during the year. However, in recent years, the pace of
growth of the private placement has slackened leading to drop in the share of private placement
to 61 percent of the total resources garnered during 2007-08. The dwindling trend in private
placement has been due to the bullish state of economy and secondary market, which made the
investing community responsive to public issues.

Table 2.7: Mobilization of funds by Indian companies through
Prospectus and rights and Private Placement

(Percentage)
1999-2000 2000-01 2004-05 2005-06 2006-07 2007-08 2008-09
A. Prospectus and Rights 11.0 8.7 21.1 11.0 22.2 39.0 13.9
B. Private Placement 89.0 91.3 78.9 89.0 77.8 61.0 86.1
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

The bulk of resources from the private placement market has been mobilized by private sector
entities – both financial and non-financial. Within the financial intermediaries groups, banks
(both public and private sectors) mobilized predominant share of resources.

Did u know? As regards subscription to the public issues, private sector companies have
been found contributing major proportion to the public offerings, accounting for over
three-fourths of the total issues offered through prospectus and rights issues during 2007-
08.

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