Capital Formation Through Public & Rights Issues in Indian Primary Capital Market: An Econometric Forecasting using Box-Jenkins ARIMA Model

Abstract

The primary capital market is the appropriate route for the capital formation in corporate sectors through public offers, rights issues and private placement, etc. The largest sources of funds from the primary capital market to the corporate sectors are mobilized through public and rights issues. Basically, an invitation is made by a company to the public to subscribe to its securities offered through prospectus is called as public offers, which can be adopted either under fixed price, book- building method or pure auction method. Public issues are of two types, namely Initial Public Offer (IPO) and Further Public Offer (FPO). On the other hand, the existing equity shareholders of the company are given opportunity to invest their money in the form of rights issues. The study analyses the forecasting of money mobilization through public and rights issues in Indian primary capital market during 2000-2001 to 2020-2021 based on data during 2000-2001 to 2018-2019 using ARIMA Modeling. The study finds that the MA (1) model has become the best model to depict the behaviour of the first differences of the capital raised through public and rights issues over the study period. The study also explores that the forecast values of capital raised through public and rights issues in India for 2018-2019, 2019-2020 and 2020-2021, may be 80,796.10, 84,446.55 and and 88,097.01  (crore in rupees), respectively.

Keywords: Capital Formation, Indian Primary Capital Market, Resource Mobilization, Public and Rights Issues, ARIMA Model.