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Ipo and retail investors b.v.raghunandan

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Ipo and retail investors b.v.raghunandan

  1. 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. 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. 3. IPOs in India • Pre-SEBI Era (the Era of Controller of Capital Issues) • Post-SEBI Era
  4. 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. 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. 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. 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. 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. 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. 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. 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. 12. THANK YOU

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