FII Activity

Investment in Indian Companies by FIIs/NRIs/PIOs

FII List Search FIIs NRIs/PIOs

Regulations

Foreign Institutional Investors (FIIs), Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) are allowed to invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS). Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through the stock exchanges in India.

The ceiling for overall investment for FIIs is 24 per cent of the paid up capital of the Indian company and 10 per cent for NRIs/PIOs. The limit is 20 per cent of the paid up capital in the case of public sector banks, including the State Bank of India.

The ceiling of 24 per cent for FII investment can be raised up to sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect. And the ceiling of 10 per cent for NRIs/PIOs can be raised to 24 per cent subject to the approval of the general body of the company passing a resolution to that effect.

The ceiling for FIIs is independent of the ceiling of 10/24 per cent for NRIs/PIOs.

The equity shares and convertible debentures of the companies within the prescribed ceilings are available for purchase under PIS subject to:

- the total purchase of all NRIs/PIOs both, on repatriation and non-repatriation basis, being within an overall ceiling limit of (a) 24 per cent of the company's total paid up equity capital and (b) 24 per cent of the total paid up value of each series of convertible debenture; and

- the investment made on repatriation basis by any single NRI/PIO in the equity shares and convertible debentures not exceeding five per cent of the paid up equity capital of the company or five per cent of the total paid up value of each series of convertible debentures issued by the company.

Monitoring Foreign Investments

The Reserve Bank of India monitors the ceilings on FII/NRI/PIO investments in Indian companies on a daily basis. For effective monitoring of foreign investment ceiling limits, the Reserve Bank has fixed cut-off points that are two percentage points lower than the actual ceilings. The cut-off point, for instance, is fixed at 8 per cent for companies in which NRIs/ PIOs can invest up to 10 per cent of the company's paid up capital. The cut-off limit for companies with 24 per cent ceiling is 22 per cent and for companies with 30 per cent ceiling, is 28 per cent and so on. Similarly, the cut-off limit for public sector banks (including State Bank of India) is 18 per cent.

Once the aggregate net purchases of equity shares of the company by FIIs/NRIs/PIOs reach the cut-off point, which is 2% below the overall limit, the Reserve Bank cautions all designated bank branches so as not to purchase any more equity shares of the respective company on behalf of FIIs/NRIs/PIOs without prior approval of the Reserve Bank. The link offices are then required to intimate the Reserve Bank about the total number and value of equity shares/convertible debentures of the company they propose to buy on behalf of FIIs/NRIs/PIOs. On receipt of such proposals, the Reserve Bank gives clearances on a first-come-first served basis till such investments in companies reach 10 / 24 / 30 / 40/ 49 per cent limit or the sectoral caps/statutory ceilings as applicable. On reaching the aggregate ceiling limit, the Reserve Bank advises all designated bank branches to stop purchases on behalf of their FIIs/NRIs/PIOs clients. The Reserve Bank also informs the general public about the `caution’ and the `stop purchase’ in these companies through a press release.

The current list of companies allowed to attract investments from FIIs/NRIs/PIOs with their respective ceilings is:

List of companies

Companies in which NRIs/PIOs investment is allowed up to 24% of their Paid-up Capital

1	Alembic Chemical Works Co. Ltd
2	Amar Investments Ltd, Calcutta.
3	Anglo-India Jute Mills Co.Ltd
4	Arvind Mills, Ahmedabad
5	Ashima Syntex Ltd, Ahmedabad
6	Ashoka Viniyoga Ltd
7	Bharat Nidhi Ltd
8	BLB Shares & Financial Services Ltd
9	BPL Ltd
10	Burr Brown (India) Ltd
11	Camac Commercial Company Ltd
12	Ceenik Exports (India) Ltd
13	Cifco Finance Ltd, Mumbai
14	Classic Financial Services & Enterprises Ltd, Calcutta
15	CPPL Ltd,(Reliance Ind. Infrastructure Ltd), Mumbai
16	CRISIL
17	DCM Shriram Consolidated Ltd
18	Dharani Sugars & Chemicals Ltd.
19	Dolphin Offshore Enterprises (I) Ltd
20	Essar Oil Ltd
21	Essar Shipping Ltd, B'lore
22	Essar Steel Ltd
23	Eveready Industries India Ltd
24	Fabworth (I) Ltd
25	Ferro Alloys Corporation Ltd, Tumsar
26	Global Tele Systems Ltd
27	Grasim Industries Ltd
28	Hamco Mining & Smelting Ltd
29	Hindustan Development Corp Ltd, Calcutta
30	Hindusthan Nitroproducts (Gujrat) Ltd
31	Hindustan Transmission Products Ltd, Mumbai
32	HMG Industries Ltd, Mumbai
33	India Securities Ltd
34	IVP Ltd.
35	Jagatjit Industries Ltd, New Delhi
36	Jai Parabolic Springs Ltd, New Delhi
37	Jaysynth Dyechem Ltd
38	Jindal Strips Ltd
39	Jindal Iron & Steel Co.Ltd
40	JJ Spectrum Silk Ltd
41	Kartjikeya Paper & Boards Ltd
42	Lakhani India Ltd
43	Matsushita Television And Audio India Ltd
44	M.P.Agro Fertilisers Ltd, Bhopal
45	Macleod Russel (I) Ltd,
46	Mazda Enterprises Ltd,Mumbai
47	Media Video Ltd
48	Multimetals Ltd, Mumbai
49	National Steel Industries Ltd
50	Nicholas Laboratories India Ltd, Mumbai
51	O.P. Electronics Ltd, Mumbai
52	Oriental Housing Development Finance Corp Ltd
53	Padmini Technologies Ltd.
54	Panacea Biotech Ltd.
55	Pearl Polymers Ltd, New Delhi
56	Piramal Healthcare Ltd
57	PNB Finance & Industries Ltd
58	Rajath Leasing & Finance Ltd
59	Rama Petrochemicals Ltd.
60	Rama Phosphates Ltd.
61	Reliance Industries Ltd, Mumbai
62	Rishra Investment Ltd, Calcutta
63	Rossell Industries Ltd, Calcutta
64	Sahu Properties Ltd
65	Sanghvi Movers Ltd
66	Saurashtra Paper & Board Mills Ltd
67	Saw Pipes Ltd
68	Sayaji Hotel Ltd
69	Sharyans Resources Ltd
70	Shrenuj & Company Ltd
71	Shibir India Ltd, Calcutta
72	Shriram Industries Enterprises Ltd,N.Delhi
73	Silverline Industries Ltd
74	Sonata Software Ltd
75	SRF Ltd
76	Sterling Lease Finance Ltd, Mumbai
77	Svam Software Ltd
78	Synthetics and Chemicals Ltd,Mumbai
79	The Champdany Industries Ltd, Calcutta
80	The Dharamsi Morarji Chemical Company Ltd
81	The Investment Trust of India Ltd
82	The Morarjee Goculdas Spinning & Weaving Company Ltd,Mumbai
83	Tolani Bulk Carrier Ltd
84	Uniworth International Ltd
85	Valecha Engineering Ltd
86	VisualSoft Technologies Ltd
87	Weltermann International Ltd
88	Woolworth (India) Ltd
89	Zora Pharma Ltd

Companies in which NRIs/PIOs investment is allowed up to 17% of their Paid-up Capital

1	Garware Shipping Corporation Ltd

Companies where NRI investment has reached 8% and further purchases are allowed only with prior approval RBI

1.	Astra IDL Ltd.
2.	M/s. Codura Exports Ltd.
3.	IDL Industries Ltd.
4.	Nexus Software Ltd.
5.	Dalmia Cement (Bharat) Ltd.

Companies where NRI investment has already reached 10% and no further purchases can be allowed

1.	DSQ Biotech Ltd
2.	Global Trust Bank Ltd.
3.	Madras Aluminium Co. Ltd
4.	SPL Ltd
5.	Seirra Optima Ltd
6.	The Baroda Rayon Corp
7.	Tai Industries Ltd.

Companies where NRI investment has already reached 22% and no further purchases can be allowed

None

Companies in which FII Investment is allowed upto 30% of their paid up capital

1.	Aptech Ltd
2.	Asian Paints (India) Ltd
3.	Capital Trust Ltd
4.	Container Corporation of India
5.	Ferro Alloys Corporation Ltd
6.	Garware Polyester Ltd
7.	GIVO Ltd (formerly KB&T Ltd)
8.	Gujarat Ambuja Cements Ltd
9.	Infotech Enterprises Ltd.
10.	Mastek Ltd
11.	Orchid Chemicals and Pharmaceuticals Ltd
12.	Pentasoft Technologies Ltd (Pentafour Communications Ltd)
13.	Polyplex Corporation Ltd
14.	Ranbaxy Laboratories Ltd
15.	Software Solutions Integrated Ltd
16.	Sonata Software Ltd
17.	The Credit Rating Information Services of India Ltd.
18.	The Paper Products Ltd
19.	Vikas WSP Ltd

Companies in which FII Investment is allowed upto 40% of their paid up capital

1.	Balaji Telefilms Ltd.
2.	M/s. Burr Brown (India) Ltd.
3.	M/s. Elbee Services Ltd.
4.	Hero Honda Motors Ltd.
5.	Jyoti Structures Ltd
6.	Maars Software International Ltd.
7.	Padmini Technologies Ltd
8.	Pentamedia Graphics Ltd.
9.	Thiru Arooran Sugars Ltd.
10.	UTV Software Ltd.
11.	VisualSoft Technologies Ltd
12.	M/s. Silverline Technologies Ltd.
13.	Ways India Ltd
14.	SSI Ltd

Companies in which FII Investment is allowed upto 49% of their paid up capital

1.	Blue Dart Express Ltd
2.	CRISIL
3.	HDFC Bank Ltd
4.	Hindustan Lever Ltd
5.	Himachal Futuristic Communications Ltd
6.	Infosys Technologies Ltd.
7.	NIIT Ltd.
8.	Dr. Reddy's Laboratories
9.	Panacea Biotec Ltd
10.	Reliance Industries Ltd.
11.	Reliance Petroleum Ltd.
12.	Sofia Software Ltd
13.	Sun Pharmaceutical Industries Ltd
14.	United Breweries Ltd.
15.	United Breweries (Holdings) Ltd.
16.	Zee Telefilms Ltd.

Companies in which NRI/FII Investment is allowed upto 49% of their paid up capital

1.	ICICI Bank Ltd.

Companies in which FII Investment is allowed upto sectoral cap/statutory ceiling of their paid up capital

1.	GTL Ltd. - (74%)
2.	Housing Development Finance Corporation Ltd. - (74%)
3.	Infosys Technologies Ltd. - (100%)
4.	Pentamedia Graphics Ltd. - (100%)
5.	Pentasoft Technologies Ltd. - (100%)
6.	Mascon Global Ltd. - (100%)
7.	Punjab Tractors Ltd. - (64%)
8.	Satyam Computer Services Ltd - (60%)

Companies where 22% FII investment limit has been reached and further purchases are allowed with prior approval of RBI

1.	ACC Ltd.
2.	Digital GlobalSoft Ltd.

Companies where 28% FII investment limit has reached and further purchases are allowed with prior approval of RBI

None

Companies where 38% FII investment limit has reached and further purchases are allowed with prior approval of RBI

None

Companies in which the Caution limit (47%) in respect of maximum permissible foreign holding including NRI/PIO/FII Investment as stipulated by Government has been reached

None

Companies where 49% limit has been reached and no further purchases will be allowed

None

Public Sector banks including SBI in which 18% limit has been reached.

None

Public Sector banks including SBI in which 20% limit has been reached.

1.	State Bank of India

Companies falling under 24%

None

Companies falling under 30%

None

Companies in which the Ban limit in respect of maximum permissible foreign holding including GDR/ADR/FDI/NRI/PIO/FII Investment as stipulated by Government has been reached

1.	ICICI Ltd.

Companies in which the Caution limit (47%) in respect of maximum permissible foreign holding including GDR/ADR/FDI/NRI/PIO/FII Investments as stipulated by Government has reached

	None

---

	Companies in which no purchases are allowed
	Companies in which investments may be made with prior approval of the RBI

---

Infaltion the Indian way

What is a price index? If you need to know how much the price of a particular commodity has increased in, say, the last year it is a simple enough

computation.

However, if you need to give a figure for the increase in prices over a range of commodities, things obviously get more complicated, since individual commodity price variations are likely to be quite different. You could choose to say the price rise ranges from, say, 4% to 26%, but that is clearly less meaningful than if you could put a single number to it and say prices have on the whole risen by 8.3%.

The purpose of a price index is to let you do just that. It does that by assigning different weights to prices of various commodities, so that you can get a weighted average of the price increases. The weights are needed because you surely wouldn't want the price of a tube of shaving cream ticket to be equated in importance with the amount you spend on petrol over a month.

Why do we need so many price indices?

There are different levels at which prices can be measured. The price of your vegetables is different for the wholesaler who buys it from the farmer, the retailer who gets it from the wholesaler and for you. We need different indices, therefore, to measure what is happening to prices a each of these levels. In India we have the wholesale price index (WPI) to track wholesale prices, as its name suggests, and three different consume price indices to track prices facing different categories of consumers — industrial workers, urban non-manual employees and agricultural workers. The different CPIs are needed because the prices facing different consumer groups are different. Thus, while urban house rents may be of great significant to the first two groups, they would be of no consequence to farm labour. Thus the composition of each CPI is different and should ideally reflected the actual consumption patterns of the relevant consumer groups.

What is the inflation rate we keep reading about?

What is generally reported is the annual point-to-point inflation rate, which measures the change in the level of a price index over a full year. The CPIs in India are computed on a monthly basis, while the WPI is computed every week. Unless otherwise indicated, the inflation rate being referred to is normally the one based on the WPI.

The year in this case would be 52 weeks.

Thus when the papers report that inflation for the week ended July 24, 2004 was 7.5%, what this means is that the WPI for that week was higher by 7.5% than the one for the week ended July 26, 2003. It is important to realise that the point-to-point inflation rate reflects only the difference in prices over two specific weeks. Hence, if the inflation rate moves up from one week to the next, it need not mean that prices have actually moved over that period.

It may equally be because there was a fall in the corresponding period of the previous year.

This also explains why economists prefer to deal with average annual inflation rates rather than with point-to-point rates. Since the former involve averages of the index over longer periods, temporary blips are evened out, giving a more realistic picture of the trend.

What is the composition of the WPI?

The WPI has an All Commodities Index, which consists of four three major groups - Primary Articles; Fuel, Power, Light & Lubricants; and Manufactured Products. These are again broken up into smaller sub-groups. For instance, the primary articles group would have food articles, non-food articles and minerals. Each of these sub-groups would have several individual commodities in them.

All told, the current WPI tracks prices of 435 commodities, of which 98 are primary articles, 19 fall in the fuel, power, light & lubricants group and 318 are in the manufactured products group.

The WPI has been periodically revised from the time it was first constructed in the 1930s and for obvious reasons the weights have moved progressively in favour of manufactured products.

The current index, which uses 1993-94 as its base year, has weights of 22.025 for primary articles, 14.226 for fuel etc and 63.749 for manufactured products.

ABC of Inflation

Definition

The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index. Over time, as the cost of goods and services increase, the value of a dollar is going to fall because a person won't be able to purchase as much with that dollar as he/she previously could. While the annual rate of inflation has fluctuated greatly over the last half century, ranging from nearly zero inflation to 23% inflation, theFed actively tries to maintain a specific rate of inflation, which is usually 2-3% but can vary depending on circumstances. opposite of deflation.

In simple words inflation is the rate of increase in the prices of most common goods purchased by

Rising inflation was the most recent ticklish political issue that hit the Manmohan Singh government. But was inflation rising because of price rise in essential commodities? Or was it because of the ‘erroneous method’ of calculating inflation?

Some economists assert that India’s method of calculating inflation is wrong as there are serious flaws in the methodologies used by the government.

Economists V Shunmugam and D G Prasad working with India’s largest commodity bourse — the Multi Commodity Exchange — have come out with a research paper arguing that the government urgently needs to shift the method of calculating inflation.

Saying that there are serious flaws in the present method of calculating inflation, the paper India should adopt methodologies in developed economies.

So how does India calculate inflation? And how is it calculated in developed countries?

India uses the Wholesale Price Index (WPI) to calculate and then decide the inflation rate in the economy.

Most developed countries use the Consumer Price Index (CPI) to calculate inflation.

Wholesale Price Index (WPI)

WPI was first published in 1902, and was one of the more economic indicators available to policy makers until it was replaced by most developed countries by the Consumer Price Index in the 1970s.

WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. In India, a total of 435 commodities data on price level is tracked through WPI which is an indicator of movement in prices of commodities in all trade and transactions. It is also the price index which is available on a weekly basis with the shortest possible time lag only two weeks. The Indian government has taken WPI as an indicator of the rate of inflation in the economy.

Consumer Price Index (CPI)

CPI is a statistical time-series measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It is a price index that tracks the prices of a specified basket of consumer goods and services, providing a measure of inflation.

CPI is a fixed quantity price index and considered by some a cost of living index. Under CPI, an index is scaled so that it is equal to 100 at a chosen point in time, so that all other values of the index are a percentage relative to this one.

Economists Shunmugam and Prasad say it is high time that India abandoned WPI and adopted CPI to calculate inflation.

India is the only major country that uses a wholesale index to measure inflation. Most countries use the CPI as a measure of inflation, as this actually measures the increase in price that a consumer will ultimately have to pay for.

"CPI is the official barometer of inflation in many countries such as the United States, the United Kingdom, Japan, France, Canada, Singapore and China. The governments there review the commodity basket of CPI every 4-5 years to factor in changes in consumption pattern," says their research paper.

It pointed out that WPI does not properly measure the exact price rise an end-consumer will experience because, as the same suggests, it is at the wholesale level.

The paper says the main problem with WPI calculation is that more than 100 out of the 435 commodities included in the Index have ceased to be important from the consumption point of view.

Take, for example, a commodity like coarse grains that go into making of livestock feed. This commodity is insignificant, but continues to be considered while measuring inflation.

India constituted the last WPI series of commodities in 1993-94; but has not updated it till now that economists argue the Index has lost relevance and can not be the barometer to calculate inflation.

Shunmugam says WPI is supposed to measure impact of prices on business. "But we use it to measure the impact on consumers. Many commodities not consumed by consumers get calculated in the index. And it does not factor in services which have assumed so much importance in the economy," he pointed out.

But why is India not switching over to the CPI method of calculating inflation?

Finance ministry officials point out that there are many intricate problems from shifting from WPI to CPI model.

First of all, they say, in India, there are four different types of CPI indices, and that makes switching over to the Index from WPI fairly ‘risky and unwieldy.’ The four CPI series are: CPI Industrial Workers; CPI Urban Non-Manual Employees; CPI Agricultural labourers; and CPI Rural labour.

Secondly, officials say the CPI cannot be used in India because there is too much of a lag in reporting CPI numbers. In fact, as of March 21, the latest CPI number reported is for Jan 2009.

The WPI is published on a weekly basis and the CPI, on a monthly basis.

And in India, inflation is calculated on a weekly basis.

Buying Shares:Fundamentals

How can one acquire equity shares?
You may subscribe to issues made by corporates in the primary market. In
the primary market, resources are mobilised by the corporates through fresh
public issues (IPOs) or through private placements. Alternately, you may
purchase shares from the secondary market. To buy and sell securities you
should approach a SEBI registered trading member (broker) of a recognized
stock exchange.

What is Bid and Ask price?
The ‘Bid’ is the buyer’s price. It is this price that you need to know when you
have to sell a stock. Bid is the rate/price at which there is a ready buyer for
the stock, which you intend to sell.
The ‘Ask’ (or offer) is what you need to know when you're buying i.e. this is
the rate/ price at which there is seller ready to sell his stock. The seller will
sell his stock if he gets the quoted “Ask’ price.
If an investor looks at a computer screen for a quote on the stock of say
XYZ Ltd, it might look something like this:
Bid (Buy side) Ask (Se ll side)
______________________________________________________
Qty. Price (Rs.) Qty. Price (Rs.)
_____________________________________________________________
1000 50.25 50.35 2000
500 50.10 50.40 1000
550 50.05 50.50 1500
2500 50.00 50.55 3000
1300 49.85 50.65 1450
_____________________________________________________________
Total 5850 8950
_____________________________________________________________
39
Here, on the left-hand side after the Bid quantity and price, whereas on the
right hand side we find the Ask quantity and prices. The best Buy (Bid) order
is the order with the highest price and therefore sits on the first line of the
Bid side (1000 shares @ Rs. 50.25). The best Sell (Ask) order is the order
with the lowest sell price (2000 shares @ Rs. 50.35). The difference in the
price of the best bid and ask is called as the Bid-Ask spread and often is an
indicator of liquidity in a stock. The narrower the difference the more liquid
or highly traded is the stock.

What is a Portfolio?
A Portfolio is a combination of different investment assets mixed and
matched for the purpose of achieving an investor's goal(s). Items that are
considered a part of your portfolio can include any asset you own-from
shares, debentures, bonds, mutual fund units to items such as gold, art and
even real estate etc. However, for most investors a portfolio has come to
signify an investment in financial instruments like shares, debentures, fixed
deposits, mutual fund units.

What is Diversification?
It is a risk management technique that mixes a wide variety of investments
within a portfolio. It is designed to minimize the impact of any one security
on overall portfolio performance. Diversification is possibly the best way to
reduce the risk in a portfolio.

What are the advantages of having a diversified portfolio?
A good investment portfolio is a mix of a wide range of asset class. Different
securities perform differently at any point in time, so with a mix of asset
types, your entire portfolio does not suffer the impact of a decline of any
one security. When your stocks go down, you may still have the stability of
the bonds in your portfolio. There have been all sorts of academic studies
and formulas that demonstrate why diversification is important, but it's
really just the simple practice of "not putting all your eggs in one basket." If
you spread your investments across various types of assets and markets,
you'll reduce the risk of your entire portfolio getting affected by the adverse
returns of any single asset class.

Factors that influence the price of a stock

Which are the factors that influence the price of a stock?

Broadly there are two factors: (1) stock specific and (2) market specific. The
stock-specific factor is related to people’s expectations about the company,
its future earnings capacity, financial health and management, level of
technology and marketing skills.
The market specific factor is influenced by the investor’s sentiment towards
the stock market as a whole. This factor depends on the environment rather
than the performance of any particular company. Events favourable to an
economy, political or regulatory environment like high economic growth,
friendly budget, stable government etc. can fuel euphoria in the investors,
resulting in a boom in the market. On the other hand, unfavourable events
like war, economic crisis, communal riots, minority government etc. depress
the market irrespective of certain companies performing well. However, the
effect of market-specific factor is generally short-term. Despite ups and
downs, price of a stock in the long run gets stabilized based on the stockspecific
factors. Therefore, a prudent advice to all investors is to analyse and
invest and not speculate in shares.
What is meant by the terms Growth Stock / Value Stock?
Growth Stocks:
In the investment world we come across terms such as Growth stocks, Value
stocks etc. Companies whose potential for growth in sales and earnings are
excellent, are growing faster than other companies in the market or other
stocks in the same industry are called the Growth Stocks. These companies
usually pay little or no dividends and instead prefer to reinvest their profits
in their business for further expansions.
Value Stocks:
The task here is to look for stocks that have been overlooked by other
investors and which may have a ‘hidden value’. These companies may have
been beaten down in price because of some bad event, or may be in an
industry that's not fancied by most investors. However, even a company
that has seen its stock price decline still has assets to its name - buildings,
real estate, inventories, subsidiaries, and so on. Many of these assets still
have value, yet that value may not be reflected in the stock's price. Value
38
investors look to buy stocks that are undervalued, and then hold those
stocks until the rest of the market realizes the real value of the company's
assets. The value investors tend to purchase a company's stock usually
based on relationships between the current market price of the company
and certain business fundamentals. They like P/E ratio being below a certain
absolute limit; dividend yields above a certain absolute limit; Total sales at a
certain level relative to the company's market capitalization, or market value
etc.

What are Shares & why they are needed

Issue of Shares

Why do companies need to issue shares to the public?
Most companies are usually started privately by their promoter(s). However,
the promoters’ capital and the borrowings from banks and financial
institutions may not be sufficient for setting up or running the business over
a long term. So companies invite the public to contribute towards the equity
and issue shares to individual investors. The way to invite share capital from
the public is through a ‘Public Issue’. Simply stated, a public issue is an offer
to the public to subscribe to the share capital of a company. Once this is
done, the company allots shares to the applicants as per the prescribed
rules and regulations laid down by SEBI.

What are the different kinds of issues?
Primarily, issues can be classified as a Public, Rights or Preferential issues
(also known as private placements). While public and rights issues involve a
detailed procedure, private placements or preferential issues are relatively
simpler. The classification of issues is illustrated below:

Initial Public Offering (IPO) is when an unlisted company makes either a
fresh issue of securities or an offer for sale of its existing securities or both
for the first time to the public. This paves way for listing and trading of the
issuer’s securities.

A follow on public offering (Further Issue) is when an already listed
company makes either a fresh issue of securities to the public or an offer for
sale to the public, through an offer document.

Rights Issue is when a listed company which proposes to issue fresh
securities to its existing shareholders as on a record date. The rights are
normally offered in a particular ratio to the number of securities held prior to
the issue. This route is best suited for companies who would like to raise
capital without diluting stake of its existing shareholders.

A Preferential issue is an issue of shares or of convertible securities by
listed companies to a select group of persons under Section 81 of the
Companies Act, 1956 which is neither a rights issue nor a public issue. This
is a faster way for a company to raise equity capital. The issuer company
has to comply with the Companies Act and the requirements contained in
18
the Chapter pertaining to preferential allotment in SEBI guidelines which
inter-alia include pricing, disclosures in notice etc.

What is meant by Issue price?
The price at which a company's shares are offered initially in the primary
market is called as the Issue price. When they begin to be traded, the
market price may be above or below the issue price.

What is meant by Market Capitalisation?
The market value of a quoted company, which is calculated by multiplying
its current share price (market price) by the number of shares in issue is
called as market capitalization. E.g. Company A has 120 million shares in
issue. The current market price is Rs. 100. The market capitalisation of
company A is Rs. 12000 million.

What is the difference between public issue and private
placement?
When an issue is not made to only a select set of people but is open to the
general public and any other investor at large, it is a public issue. But if the
issue is made to a select set of people, it is called private placement. As per
Companies Act, 1956, an issue becomes public if it results in allotment to 50
persons or more. This means an issue can be privately placed where an
allotment is made to less than 50 persons.

What is an Initial Public Offer (IPO)?
An Initial Public Offer (IPO) is the selling of securities to the public in the
primary market. It is when an unlisted company makes either a fresh issue
of securities or an offer for sale of its existing securities or both for the first
time to the public. This paves way for listing and trading of the issuer’s
securities. The sale of securities can be either through book building or
through normal public issue.

Who decides the price of an issue?
Indian primary market ushered in an era of free pricing in 1992. Following
this, the guidelines have provided that the issuer in consultation with
Merchant Banker shall decide the price. There is no price formula stipulated
by SEBI. SEBI does not play any role in price fixation. The company and
merchant banker are however required to give full disclosures of the
parameters which they had considered while deciding the issue price. There
are two types of issues, one where company and Lead Merchant Banker fix a
price (called fixed price) and other, where the company and the Lead
Manager (LM) stipulate a floor price or a price band and leave it to market
forces to determine the final price (price discovery through book building
process).

What does ‘price discovery through Book Building Process’
mean?
Book Building is basically a process used in IPOs for efficient price discovery.
It is a mechanism where, during the period for which the IPO is open, bids
are collected from investors at various prices, which are above or equal to
the floor price. The offer price is determined after the bid closing date.
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What is the main difference between offer of shares through
book building and offer of shares through normal public issue?
Price at which securities will be allotted is not known in case of offer of
shares through Book Building while in case of offer of shares through normal
public issue, price is known in advance to investor. Under Book Building,
investors bid for shares at the floor price or above and after the closure of
the book building process the price is determined for allotment of shares.
In case of Book Building, the demand can be known everyday as the book
is being built. But in case of the public issue the demand is known at the
close of the issue.
What is Cut-Off Price?
In a Book building issue, the issuer is required to indicate either the price
band or a floor price in the prospectus. The actual discovered issue price can
be any price in the price band or any price above the floor price. This issue
price is called “Cut-Off Price”. The issuer and lead manager decides this after
considering the book and the investors’ appetite for the stock.

What is the floor price in case of book building?
Floor price is the minimum price at which bids can be made.

What is a Price Band in a book built IPO?
The prospectus may contain either the floor price for the securities or a price
band within which the investors can bid. The spread between the floor and
the cap of the price band shall not be more than 20%. In other words, it
means that the cap should not be more than 120% of the floor price. The
price band can have a revision and such a revision in the price band shall be
widely disseminated by informing the stock exchanges, by issuing a press
release and also indicating the change on the relevant website and the
terminals of the trading members participating in the book building process.
In case the price band is revised, the bidding period shall be extended for a
further period of three days, subject to the total bidding period not
exceeding ten days.
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Who decides the Price Band?
It may be understood that the regulatory mechanism does not play a role in
setting the price for issues. It is up to the company to decide on the price or
the price band, in consultation with Merchant Bankers.

What is minimum number of days for which a bid should
remain open during book building?
The Book should remain open for a minimum of 3 days.

Can open outcry system be used for book building?
No. As per SEBI, only electronically linked transparent facility is allowed to
be used in case of book building.

Can the individual investor use the book building facility to
make an application?
Yes.

How does one know if shares are allotted in an IPO/offer for
sale? What is the timeframe for getting refund if shares not
allotted?
As per SEBI guidelines, the Basis of Allotment should be completed with 15
days from the issue close date. As soon as the basis of allotment is
completed, within 2 working days the details of credit to demat account /
allotment advice and despatch of refund order needs to be completed. So an
investor should know in about 15 days time from the closure of issue,
whether shares are allotted to him or not.
How long does it take to get the shares listed after issue?
It would take around 3 weeks after the closure of the book built issue.
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What is the role of a ‘Registrar’ to an issue?
The Registrar finalizes the list of eligible allottees after deleting the invalid
applications and ensures that the corporate action for crediting of shares to
the demat accounts of the applicants is done and the dispatch of refund
orders to those applicable are sent. The Lead Manager coordinates with the
Registrar to ensure follow up so that that the flow of applications from
collecting bank branches, processing of the applications and other matters
till the basis of allotment is finalized, dispatch security certificates and
refund orders completed and securities listed.

Does NSE provide any facility for IPO?
Yes. NSE’s electronic trading network spans across the country providing
access to investors in remote areas. NSE decided to offer this infrastructure
for conducting online IPOs through the Book Building process. NSE operates
a fully automated screen based bidding system called NEAT IPO that enables
trading members to enter bids directly from their offices through a
sophisticated telecommunication network.
Book Building through the NSE system offers several advantages:
The NSE system offers a nation wide bidding facility in securities
It provide a fair, efficient & transparent method for collecting bids
using the latest electronic trading systems
Costs involved in the issue are far less than those in a normal IPO
The system reduces the time taken for completion of the issue
process
The IPO market timings are from 10.00 a.m. to 3.00 p.m. On the last day of
the IPO, the session timings can be further extended on specific request by
the Book Running Lead Manager.

What is a Prospectus?
A large number of new companies float public issues. While a large number
of these companies are genuine, quite a few may want to exploit the
investors. Therefore, it is very important that an investor before applying for
any issue identifies future potential of a company. A part of the guidelines
issued by SEBI (Securities and Exchange Board of India) is the disclosure of
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information to the public. This disclosure includes information like the reason
for raising the money, the way money is proposed to be spent, the return
expected on the money etc. This information is in the form of ‘Prospectus’
which also includes information regarding the size of the issue, the current
status of the company, its equity capital, its current and past performance,
the promoters, the project, cost of the project, means of financing, product
and capacity etc. It also contains lot of mandatory information regarding
underwriting and statutory compliances. This helps investors to evaluate
short term and long term prospects of the company.

What does ‘Draft Offer document’ mean?
‘Offer document’ means Prospectus in case of a public issue or offer for sale
and Letter of Offer in case of a rights issue which is filed with the Registrar
of Companies (ROC) and Stock Exchanges (SEs). An offer document covers
all the relevant information to help an investor to make his/her investment
decision.
‘Draft Offer document’ means the offer document in draft stage. The draft
offer documents are filed with SEBI, atleast 21 days prior to the filing of the
Offer Document with ROC/SEs. SEBI may specify changes, if any, in the
draft Offer Document and the issuer or the lead merchant banker shall carry
out such changes in the draft offer document before filing the Offer
Document with ROC/SEs. The Draft Offer Document is available on the SEBI
website for public comments for a period of 21 days from the filing of the
Draft Offer Document with SEBI.

What is an ‘Abridged Prospectus’?
‘Abridged Prospectus’ is a shorter version of the Prospectus and contains all
the salient features of a Prospectus. It accompanies the application form of
public issues.

Who prepares the ‘Prospectus’/‘Offer Documents’?
Generally, the public issues of companies are handled by ‘Merchant Bankers’
who are responsible for getting the project appraised, finalizing the cost of
the project, profitability estimates and for preparing of ‘Prospectus’. The
‘Prospectus’ is submitted to SEBI for its approval.
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What does one mean by ‘Lock-in’?
‘Lock-in’ indicates a freeze on the sale of shares for a certain period of time.
SEBI guidelines have stipulated lock-in requirements on shares of promoters
mainly to ensure that the promoters or main persons, who are controlling
the company, shall continue to hold some minimum percentage in the
company after the public issue.

What is meant by ‘Listing of Securities’?
Listing means admission of securities of an issuer to trading privileges
(dealings) on a stock exchange through a formal agreement. The prime
objective of admission to dealings on the exchange is to provide liquidity
and marketability to securities, as also to provide a mechanism for effective
control and supervision of trading.

What is a ‘Listing Agreement’?
At the time of listing securities of a company on a stock exchange, the
company is required to enter into a listing agreement with the exchange.
The listing agreement specifies the terms and conditions of listing and the
disclosures that shall be made by a company on a continuous basis to the
exchange.

What does ‘Delisting of securities’ mean?
The term ‘Delisting of securities’ means permanent removal of securities of a
listed company from a stock exchange. As a consequence of delisting, the
securities of that company would no longer be traded at that stock
exchange.

What is SEBI’s Role in an Issue?
Any company making a public issue or a listed company making a rights
issue of value of more than Rs 50 lakh is required to file a draft offer
document with SEBI for its observations. The company can proceed further
on the issue only after getting observations from SEBI. The validity period of
SEBI’s observation letter is three months only i.e. the company has to open
its issue within three months period.
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Does it mean that SEBI recommends an issue?
SEBI does not recommend any issue nor does take any responsibility either
for the financial soundness of any scheme or the project for which the issue
is proposed to be made or for the correctness of the statements made or
opinions expressed in the offer document. SEBI mainly scrutinizes the issue
for seeing that adequate disclosures are made by the issuing company in the
prospectus or offer document.

Does SEBI tag make one’s money safe?
The investors should make an informed decision purely by themselves based
on the contents disclosed in the offer documents. SEBI does not associate
itself with any issue/issuer and should in no way be construed as a
guarantee for the funds that the investor proposes to invest through the
issue. However, the investors are generally advised to study all the material
facts pertaining to the issue including the risk factors before considering any
investment. They are strongly warned against relying on any ‘tips’ or news
through unofficial means.