Sebi plans steps to revive IPO market

India’s primary market has seen a steady decline in investor interest in the past decade as aggressive pricing by issuers and volatile bourses saddled retail investors with losses. In the year to March 2003, domestic equity and debt issuers raised Rs 5732 crore through the IPO route, less than half the Rs 13,312 crore mobilised in 1994/95. The number of public issues also fell — to 14 from 1,343 in 1994/95, the year in which the decline started. Most of the companies which came out with issues in the 1994-98 period vanished after raising funds from the public.

Sebi said it would introduce a blackout period on research done by associates of the issue management team to prevent the publication of biased research reports. It will prohibit institutional investors from withdrawing bids and introduce the concept of a moveable price band to replace the fixed-floor price.

And just as institutions are allowed to revise bids in a book-built issue, Sebi has now said that even retail investors can do so too. This puts the retail investor on par with institutions.

Sebi plans to tighten rules for companies issuing capital. Issuers may now have to meet a minimum net asset requirement norm and complete financial closure before a public issue. Also, all book built issues will now have to be listed in six days, instead of within two weeks. And the institutional portion of a IPO issue will be brought down from 60% to 50%.

Sebi said these steps were meant to prevent exposing the public to undue risk, to maintain the quality of issuers and also to keep “fly-by-night” issuers at bay.