IPO grading has not served the purpose: Sebi

Sinha in the recent past had highlighted the underperformance of the IPOs and the resultant lack of confidence among retail investors. He also emphasised on the importance of reasonable pricing of public issues and advised the merchant bankers and the promoters factor it while pricing their issues.

Sinha feels that IPO grading has not been of much use to investors as it only comments on the fundamentals of the company and systems and processes but does not have a view on pricing of the issue.

Can we force them to give comment on pricing too8230; There have been strong views against that too, said Sinha. If we look into the performance of the 97 IPOs that have come in the market since January 2010,75 of them are trading below their issue price.

While 58 public issues in the period received an IPO grading of 3 or above 3 8211; average fundamental,4 8211; above average fundamental and 5 8211; strong fundamental,41 of them are trading below their issue price which means that 70 per cent of the issues that received higher grading on fundamentals have not been able to generate returns for the investor.

The concept of mandatory IPO grading had received criticism from various corners ever since it was introduced by Sebi from May 2007.

Equity is a moving object while grades are one-time and that too based supposedly only on fundamentals. IPO grading becomes even more redundant as it does not factor pricing. In fact,high grades can prompt issuers to price themselves even more aggressively, said Prithvi Haldea,managing director,Prime Database.