Sebi backs small investors' interest in IPO market
The Securities & Exchange Board of India has taken a host of
steps to protect the retail stock investors. Let's see what relief they
will give to small investors.
The Securities & Exchange Board of India (Sebi) has taken a host of steps to protect the retail stock investors. Let's see what relief they will give to small investors.
SURE-SHOT ALLOTMENT
Every retail applicant in an initial public offer, or IPO, will get a certain number of shares, subject to availability. Also, the minimum application size for retail investors has been increased from Rs 5,000-7,000 to Rs 10,000-15,000.
Earlier, in case of oversubscription, those with the highest bid were allotted shares proportionately. For example, if you applied for shares worth Rs 200,000 at the upper end of the price band and the issue got subscribed five times, you were allotted shares worth Rs 40,000. Those who bid for a lesser amount were unlikely to get any shares.
Now, every retail investor will get a minimum number of shares subject to availability, while the remaining will be allotted proportionately.
"It's a positive for retail investors as there will be assured allotment. It is likely to encourage participation from investors who stay away from IPOs thinking they won't get any share," says Gesu Kaushal, executive director, Kotak Investment Banking.
While this will benefit investors who do not apply for shares worth the maximum amount permissible, those who apply for the full amount are likely to get fewer shares.
According to experts, such investors can open demat accounts in the name of their family members and apply. The move, they say, will bring more investors to the stock market.
LOW-COST DEMAT
Retail investors will be able to open a basic demat account that will offer limited services at a reduced cost. However, the value of securities in such no-frill accounts must not exceed Rs 2 lakh.
The annual maintenance charge will be nil if the value of the securities held is up to Rs 50,000. A fee of Rs 100 will be charged if the value of the holdings is Rs 50,000-200,000.
Experts say this will reduce costs for investors who do not hold too many securities and do few transactions.
"From retail investors' point of view, it is a good move provided the pricing is right. With right pricing, institutional investors will buy on listing and top up the price," says Avinash Gupta, national leader and head of financial advisory services at Deloitte.
INVESTOR-FRIENDLY IPOs
The regulator has made the process of applying for IPOs easier. An investor can now apply in an electronic form through brokers. Stock exchanges, too, will provide forms on websites and facilitate viewing of the status of the IPO applications.
EXTRA CLARITY
Sebi has made a couple of other changes in rules that may indirectly help investors. For instance, the move to not allow non-retail investors to withdraw bids will give more clarity to retail investors.
Market experts say that in a number of IPOs, HNIs apply in a big way, with the result that the issue is oversubscribed. This attracts small investors. HNIs take advantage of this to withdraw their bids. Now, only serious HNIs will apply in public issues.
"Retail investors look at the response from HNIs and institutional investors before deciding whether to bid or not. Now, with the rule that non-retail investors cannot withdraw or downsize bids, retail investors will get an accurate view of IPO subscription level/demand," says Kaushal of Kotak.
Sebi has also decided that companies can use rights and bonus issues, plus a few other options, to meet the minimum public shareholding requirement.
"To drive liquidity you need to have at least 25 per cent free float. Even companies with 25 per cent public shareholding may have allotted only 10 per cent shares to the public, with the remaining 15 per cent held by promoters' friends and family members. There should be genuine free float," says Gupta of Deloitte.
Sebi has also tried to ensure that retail investors are exposed to only quality issues. For this, it has increased the minimum three-year average pre-tax operating profit requirement from Rs 5 crore to Rs 15 crore.
Other issuers can access the capital market through the small and medium enterprise platform or take the book-building route, for which the qualified institutional buyer (QIB) participation must be at least 75 per cent (this was 50 per cent earlier). Earlier, companies were free to come out with a fixed price issue or discover the price in a book-building process.
Sebi has also sought more disclosures from companies for improving corporate governance.
SURE-SHOT ALLOTMENT
Every retail applicant in an initial public offer, or IPO, will get a certain number of shares, subject to availability. Also, the minimum application size for retail investors has been increased from Rs 5,000-7,000 to Rs 10,000-15,000.
Earlier, in case of oversubscription, those with the highest bid were allotted shares proportionately. For example, if you applied for shares worth Rs 200,000 at the upper end of the price band and the issue got subscribed five times, you were allotted shares worth Rs 40,000. Those who bid for a lesser amount were unlikely to get any shares.
Now, every retail investor will get a minimum number of shares subject to availability, while the remaining will be allotted proportionately.
"It's a positive for retail investors as there will be assured allotment. It is likely to encourage participation from investors who stay away from IPOs thinking they won't get any share," says Gesu Kaushal, executive director, Kotak Investment Banking.
While this will benefit investors who do not apply for shares worth the maximum amount permissible, those who apply for the full amount are likely to get fewer shares.
According to experts, such investors can open demat accounts in the name of their family members and apply. The move, they say, will bring more investors to the stock market.
LOW-COST DEMAT
Retail investors will be able to open a basic demat account that will offer limited services at a reduced cost. However, the value of securities in such no-frill accounts must not exceed Rs 2 lakh.
Experts say this will reduce costs for investors who do not hold too many securities and do few transactions.
"From retail investors' point of view, it is a good move provided the pricing is right. With right pricing, institutional investors will buy on listing and top up the price," says Avinash Gupta, national leader and head of financial advisory services at Deloitte.
INVESTOR-FRIENDLY IPOs
The regulator has made the process of applying for IPOs easier. An investor can now apply in an electronic form through brokers. Stock exchanges, too, will provide forms on websites and facilitate viewing of the status of the IPO applications.
EXTRA CLARITY
Sebi has made a couple of other changes in rules that may indirectly help investors. For instance, the move to not allow non-retail investors to withdraw bids will give more clarity to retail investors.
Market experts say that in a number of IPOs, HNIs apply in a big way, with the result that the issue is oversubscribed. This attracts small investors. HNIs take advantage of this to withdraw their bids. Now, only serious HNIs will apply in public issues.
"Retail investors look at the response from HNIs and institutional investors before deciding whether to bid or not. Now, with the rule that non-retail investors cannot withdraw or downsize bids, retail investors will get an accurate view of IPO subscription level/demand," says Kaushal of Kotak.
Sebi has also decided that companies can use rights and bonus issues, plus a few other options, to meet the minimum public shareholding requirement.
"To drive liquidity you need to have at least 25 per cent free float. Even companies with 25 per cent public shareholding may have allotted only 10 per cent shares to the public, with the remaining 15 per cent held by promoters' friends and family members. There should be genuine free float," says Gupta of Deloitte.
Sebi has also tried to ensure that retail investors are exposed to only quality issues. For this, it has increased the minimum three-year average pre-tax operating profit requirement from Rs 5 crore to Rs 15 crore.
Other issuers can access the capital market through the small and medium enterprise platform or take the book-building route, for which the qualified institutional buyer (QIB) participation must be at least 75 per cent (this was 50 per cent earlier). Earlier, companies were free to come out with a fixed price issue or discover the price in a book-building process.
Sebi has also sought more disclosures from companies for improving corporate governance.
