Small investors lukewarm to mega public offerings

ICICI Bank was forced to give a discount of Rs 50 to retail investors and also offered a part-payment system to attract small investors to its follow-on issue. “Retail investors will go for follow-on issues only when the shares are available at substantial discounts. If the issue price is close to the market price, investors can always pick up the shares from the secondary market,” said Prtithvi Haldea, MD of Prime Database.

According to DR Dogra, executive director, CARE Ratings, it’s the big issues which are finding it difficult to get adequate retail investors. “Good quality small issues will get retail response… but big issues will need more investors, that too in large numbers,” he said.

“You can’t say retail response to the public issues was lacklustre. These were big issues. A Rs 10,000 crore issue getting full subscription is a big achievement than a Rs 50 crore issue getting five times subscription. Earlier companies used to raise Rs 20,000 crore in a full year from the market. Now they have raised this amount in a month,” Haldea said. The RPL mega issue was lapped up by retail investors with the quota oversubscribing 17 times while Cairn India issue got a lacklustre response.

In fact, qualified institutional buyers (QIBs) — which include FIIs, banks, FIs and mutual funds — have been bailing out some of the issues by bidding for excess shares. If there’s an unsubscribed portion in the retail quota, it can be offered to the QIBs. In the book-building method, 35 per cent of the issue is reserved for retail investors, 50 per cent to QIBs and 15 per cent to non-institutional high networth investors. Sebi has defined a retail investor as one who bids for shares up to Rs one lakh.

Said a senior official of a merchant bank, “one way to tackle the low investor turnout is to change this reservation system. Don’t earmark 35 per cent of the issue size to retail investors. It should be reduced to 25 per cent in mega issues of Rs 1,000 crore and above or make it a pure auction system. Issuers would be forced to shell out more sops to bring in retail investors.” As the Indian market is getting institutionalised, the role of retail investors is getting diminished.

One school of thought says after the IPO scam and the Sebi clampdown, the number of multiple applications has come down drastically. Though a parliamentary committee mooted the scrapping of the reservation system and introduction of the pure auction method, the Sebi was not keen on a change.