The uncertainty in the secondary market has not deterred a number of companies with revenues of about R100 crore from tapping the primary market.

For the three-month period ending September 30, 2011 as many as 11 such companies entered the capital market with issuances below R300 crore.

Another half-a-dozen companies such as Indo Thai Securities, Flexituff International, Taksheel Solutions and Onelife Capital Advisors are making a dash to tap the primary market.

Of the ones already listed, six are trading below the issue price. The share price of Bharatiya Global Infomedia has declined the most and is down about 85%. Brooks Laboratories and Readymade Steel India are down 79% and 62%, respectively. Among the gainers, the share price of Rushil D?cor has risen 161% while Birla Pacific Medspahas gained 73.5%.

Smaller companies are turning to the capital market as they can typically borrow only up to 20-25% of their turnover from banks for their working capital needs. As per Sebi guidelines, companies offering shares to the public should have a 3-year track record of profits but startups can bypass this rule by offering 60% of their offer for sale to qualified institutional buyers. Apart from funding needs, these companies may also tap the capital market to improve their visibility.

Interestingly, the institutional portion in most of these issues has remained undersubscribed. Yet, participation from retail investors and high net worth individuals was robust. ?The shareholding pattern is generally concentrated in these companies and it is difficult to attract institutional investors. They generally bank on select HNIs and retail investors to bail out the issue,? said Jagannadham Thunuguntla, head-research, SMC Global Securities.

Issues of Brooks Laboratories, Inventure Growth & Securities, Bharatiya Global Infomedia, Readymade Steel India, SRS, PG Electroplast and Rushil D?cor were oversubscribed despite lacklustre participation from institutional investors on good response from non-institutional investors and retail individual investors.

Retail investors and HNIs typically invest in these issue for listing gains. ?Only those with a high risk appetite should invest,? said Thunuguntla.

Another challenge for promoters of these companies is attracting top-notch merchant bankers. These issues are handled by smaller i-bankers such as SPA Merchant Bankers, Arihant Capital Markets, Almondz Global Securities, Saffron Capital Advisors, Keynote Corporate Services and Ashika.