This is a clear indication that the finance ministry has recognised the moribund state of primary markets and the need to revive it, particularly for small and medium investors. The proposal will not only inject fresh blood into companies that are planning to tap primary market, but also into lead managers and underwriters besides investor fraternity in general.

During April to December 2000, resource mobilisation in the primary market through public and right issues was 25.9 per cent lower than in the corresponding period, states Deloitte & Touch India.

According to CMIE monthly review of the Indian Economy, December 2000, till November-end, there were ten initial public offers (IPO) by companies in the domestic capital market. The IPOs which included three premium issues raised Rs 210.13 crore. The amount raised was nearly 104 per cent higher than Rs 103 crore raised during the year.

While Bharti Tele is expected to raise money to the tune of Rs 800 crore-Rs 900 crore, MBT is also expected to raise a similar amount. Apart from these two issues, there are other companies waiting to tap primary market once the sentiments improve. In the recent past, the market witnessed only two primary issues namely Mid-day Multimedia and D-Link (India). The worsening of secondary market has prevented many companies to tap this route and go in for other sources like preferential issue or for that matter through debt market.

In the event of a slew of problems in the path of divestment efforts of the government, tapping primary market became a risky proposition as the chances of issue getting devolved are more. A case in point is Hughes Tele.com. The Union Budget's proposal is sure to infuse fresh momentum in the upcoming primary issues.

Primary markets are a reflection of the secondary market sentiments which were in a volatile state lately. Moreover, long-term investing or value investing have gone for a toss. Another problem peculiar to the primary markets is that unlike the secondary markets there is a dearth of information regarding the company. Only a handful, including the management of the company and the issue manager or investment bankers have access to vital information for making investment decisions.

Even the book-building route is not free from anomalies and price distortions can arise. Cadila Healthcare and Creative Eye issues can be cited as examples of this as the price had to be revised downwards later after an inflated price did not find favour with the public in the book-building issue.