1.
IPO and Retail Investors
-B.V.Raghunandan
National Level Seminar on
‘Contemporary Issues in Financial Services”
Government First Grade College, Bettampady
September 19,2014

2.
IPOs and Economy
• IPOs tap household savings
• It gives width and depth to the stock market
• Massive projects can be financed through IPOs which
tap the richest source of investors i.e retail investors
• Provides contrarian views to achieve stability in the
stock market
• Moves the market towards perfection as a group of
people can not influence the momentum in the market

3.
IPOs in India
• Pre-SEBI Era (the Era of Controller of Capital Issues)
• Post-SEBI Era

4.
Pre-SEBI Era
• Controller of Capital Issues was the regulator
• Took a long time in getting the approval
• Very conservative way of determining the share
premium
• The applicants getting the allotment were sure to get
capital appreciation
• Dhirubhai Ambani and Venugopal Dhoot of Videocon
believed in primary market and stock market

5.
SEBI Era
• Brought in freedom through
free pricing of the issue leading
to hefty premium
• Reduced the time for
application and allotment
• Ensured fair allotment of
shares by fixing the
responsibility on the merchant
bankers
• Redefined the functions and
duties of various
intermediaries
• Using the IT platforms of stock
exchanges, enabled book-building
• Compliance officer for each
issue and investor grievance
redressal
• Introduced the concept of
discount to the retail investors

6.
Free Pricing
• In order to give
freedom to the issuing
company, SEBI allowed
free pricing the IPO
• A company can charge
a premium which it
sees fit like a soap
manufacturing
company choosing its
own price
• This was a severe lapse
on the part of SEBI
• Unscrupulous
companies charged
hefty premium not
justifiable on the
financials of the
company

7.
A Few Instances
• DLF’s IPO in 2007 at Rs.525
(FV Rs.2 per share)
• Reliance Power made an IPO
in January 2008 allotting the
shares at RS.450 (Rs.10 per
share)
• Money collected was massive
creating a crisis in the money
market through the drain of
liquidity
• SKS Microfinance made an
IPO in 2010 at Rs.935 to
retail investors (Rs.10 per
share)
• 80 % of IPOs made in 2008
and 2009 are trading below
the offer price even now

8.
Duration of IPOs
• It used to be open for five
days
• Book-building reduced it to
three days
• Offer for Sale has reduced it
to one day

9.
Access to Subscription
• In firm offers, many
sources to issue
applications
• There were also many
bankers accepting the
application forms
• Now book-building
reduced this to members
of the Syndicate
• In offer for sale, it requires
to be a client of a single
agency like StockHolding
Corporation of India
Indian companies mopped-up Rs 1,619 cr in 2013 through IPO, the lowest level in 12 yrs.
Reuters

10.
Too Much
Sophistication
• Usage of IT scares away
many investors making
the markets to be
dominated by
institutional investors
leading to lack of stability
• Unlike in the stock
market, keeping the
subscription open for a
few more days may not
affect the development
of the market
• Physical format should
also be kept as a choice

11.
Reforms of IPO market
• Stop free pricing and
connect it to book value
of the share
• No compulsory demat
account for Book-
Building
• Book-Building and Firm
Price offer side by side
with the cut off price
applicable to the firm
offer
• Issue of IPO cards to the
investors to be used for
subscribing to the IPO
• Longer duration for
subscription
• Introducing a physical
segment of trading in
stock exchanges

12.
THANK YOU