Book-building process is a transparent and flexible price discovery method used in most developed countries for marketing a public offer of equity shareseither Initial Public Offerings (IPOs) or Further Public Offerings (FPOs) of a company. Under this method, price of securities is fixed by the issuer company along with Book Running Lead Managers (BRLM) on the basis of feedback received from investors through market intermediaries during a certain period, in accordance with Sebi guidelines in India. In this perspective, this article makes an attempt to review the different aspects of the book-building process of public issues and merchant banking activities relating to such process in the Indian primary capital market.
The liberalization policies ushered in by the government, in 1991, have brought
about a new dimension in the capital market as well as corporate environment in
India. The investment climate improved considerably following the modification
of licensing procedures and the freedom to fix issue prices for new issues, etc. The abolition
of the Capital Issue Control Act, 1947 also welcomed a new era in the primary capital
markets in India. Controls over the pricing of the issues, and designing and tenure of the
capital issues were abolished after establishment of Securities and Exchange Board of
India (SEBI) in 1988. The issuers, at present, are free to make the price of the issues under
the ambit of Sebi. Before the establishment of Sebi, the quality of disclosures in the offer
documents was very poor. Sebi also formulated and prescribed stringent disclosure
norms in conformity to global standards. These favorable developments lead to rapid
growth in the quantum of financial investment. Thus, the primary capital market in
India has been witnessing tremendous growth in the number of new issues hitting the
market, surpassing the normal growth that is expected as a result of growth in the economy.
While companies are very much
keen on taking finance from the public through
primary capital market, they require financial
services in mobilization of finance from the
capital market. Today is the era of specialization
in service functions, and the merchant banker plays a very significant role in tandem with the corporate clients and the national
economy. Though the merchant bankers remained almost stagnant and stereotyped till
the 1990s, they have witnessed a remarkable growth during this period after the process
of economic reforms and deregulation of the Indian economy. With free pricing of issues
coupled with an increasing trend towards equity financing by companies, more and
more companies are entering the capital market for funds resulting in a great scope for
merchant banking services. As capital markets assume increased complexities, the need
for such services from an investor’s point of view has also become enhanced. To keep
pace with the globalization and liberalization process the government of India is very
much concerned with the Indian capital market. |
