Having already ensured that retail investors get a minimum number of shares allotted when they apply for an IPO, making ASBA (Application Supported by Blocked Amount) facility available at more centres, the Securities and Exchange Board of India is now working on more measures to raise investor confidence in the public issue process to encourage retail participation.
On the anvil are plans to make it mandatory for companies to set up a monitoring agency for use of public issue proceeds, removing anomaly in the minimum issue size for companies based on their post issue capital and increase quota of anchor investors in an issue.
These measures are salutary but is it that public issues are not happening because these safeguards are not there? Historical data shows that companies and investors have lined up for IPOs — even for those that have been priced at significant premium — when the equity markets have been doing well. The last two such phases when activity in the primary markets jumped following sharp rise in the equity markets were the three years between 2005 and 2007 and the two years following the global financial crisis of 2008-09.
Interestingly, even though Sebi took several measures to revive the equity markets in 2012, these measures could hardly do anything to lift primary market activity when the overall market was down. The number of companies which came to raise money through public issues dipped sharply from fund raising of over Rs 35,000 crore in 2010-11 to a mere Rs 1,236 crore in the year ended March 2014.
Experts agree and point out that frequent changes in rules make it tough even for the intermediaries to comply with them. The changes often appear to the public as an expression of discontent of the regulator with the market and make investment more skittish.
The secondary markets have witnessed a revival in sentiments following a strong mandate to the BJP-led coalition and it may be safe to assume that the primary market activity will also see a revival as they often reflect the conditions in the secondary market with a lag. It may be useful for Sebi to hold back the changes right now and see instead how the markets shape up.
Sandeep is a senior assistant editor based in New Delhi.