Informist, Friday, May 20, 2022

By Rajesh Gajra

In a speech in February, the then Securities and Exchange Board of India chairman Ajay Tyagi said the issue about appropriateness of valuation of loss-making new-age companies coming out with initial public offerings was being debated intensely.

The debates have picked up pace in recent weeks with the IPO frenzy waning following the fall in equity indices.

Secondary market performance of recent high profile IPOs like Zomato and One97 Communications has been hugely underwhelming.

A report in Mint on Wednesday said SEBI is internally looking into secondary market performance of recent high-profile IPOs. The regulator was also advising IPO candidates to reconsider valuations, the report said.

Over the last one year, the stock market regulator has tightened disclosure norms for listing of companies on exchanges, including on the exit of large shareholders through offer for sale.

The changes have mostly focussed on new-age companies.

SEBI debating IPO valuations is fine, but the fact is that retail and institutional investors are aware of the rich valuations when they invest.

The problem is not the lack of awareness.

Investors, of all hues, are flush with funds and are looking for quick returns.

In addition, brokerages and non-banking finance companies offer easy liquidity for those looking to invest in IPOs. The leverage being offered to investors rose so much that the Reserve Bank of India had to step in and cap the lending by NBFCs at 10 mln rupees per borrower.

The IPO market started heating up in mid-2020, helped by huge surplus of liquidity in the system following steps taken by the RBI and the government to alleviate the economic impact of the pandemic. Primary market issues were getting subscribed multiple times and providing significant listing gains.

Taking advantage of the liquidity, investment bankers prodded unlisted companies and their private equity investors to cash in on the IPO boom.

Retail investors were lured by the prospect of high and quick returns.

These factors have played out in the primary market in the last 18 months.

SEBI has done a lot to improve disclosures in IPO offer documents. But it has stopped short of taking steps to control leverage and liquidity in the IPO market.

SEBI must explore measures to curb IPO financing. Such funding is also sustaining the pre-listing IPO grey market.

The leverage available to ultra-short term investors is huge and the market regulator will not hurt anyone if this is tempered.

Retail investors file multiple IPO subscription forms to improve their chances of getting allotment, which fed on itself leading to oversubscription by multiple times.

SEBI must review the allotment process. If there is a way to assure a minimum level of allotment to each subscriber it must be explored.

SEBI must also consider extending the lock-in period for anchor investors, who have a rub on effect retail investors. A longer lock-in period for the anchor investors will provide confidence to retail investors.

Usually, regulators must avoid fiddling with valuations in the market. The market must be let free to decide. The demand-supply dynamics may not always be what the regulator desires.

The performance of IPOs in the secondary market ought not to be the regulator's worry. Markets ebb and flow. It is a natural cycle.

The market regulator must only ensure that the processes that grease the market ecosystem are not gamed and manipulated.

LATEST ANNOUNCEMENTS

* SEBI proposes banning celebrity promotion of cryptos (Moneycontrol)

* SEBI says No WFH for financial intermediaries, it plans directive to improve surveillance (FE)

* SEBI paper proposes non-public pre-filing of IPO draft offer document

* SEBI grants accreditation agency status to NSDL subsidiary

ORDERS, ADJUDICATION PROCEEDINGS

* SEBI mulls penal action vs Axis MF post AMC's internal report (ETNow)

* SEBI imposes 10-mln-rupee fine on Fortis Healthcare arm Escorts Heart Institute and Research  

* SEBI slaps 387 mln rupees penalties on 32 entities (PTI)

* SEBI levies 6.6 mln rupees fine on 11 entities for flouting market norms (PTI)

REGULATIONS (Announced in the past three months)

* SEBI cuts listing timeline for REITs and InvITs to 6 working days

* SEBI issues operational guidelines for covenant monitoring with Distributed Ledger Technology (PTI)

* SEBI eases transmission process, raises limit for simplified document

* SEBI issues norms for use of platform to monitor security, covenants

DATA FROM SEBI     

IPO/FPO/NFO

* SEBI approves public offer of Dreamfolks Services

* Archean Chemical Industries gets SEBI OK for public issue

* SEBI approved Fedbank Financial's public issue Friday

SEBI IN NEWS    

* SEBI receives two names for NSE top job, may ask exchange for more (BS)

* SEBI simplifies procedure for transmission of securities (Mint)

* NSE moves SEBI to settle 2021 technical glitch case (ET Now)

* SEBI may seek powers to intercept, decrypt data on social media (ET)

Sources - Television, Print, or Web Editions of: PTI--Press Trust of India, BS--Business Standard, ET--The Economic Times, Moneycontrol, CNBC TV-18, Mint, BL--The Hindu Business Line, TH--The Hindu, RTR—Reuters, BT--Business Today, IANS--Indo-Asian News Service, IE— The Indian Express, ToI--The Times of India, BB-Bloomberg Quint

Internet links: http://www.sebi.gov.in

#--Data not available for May 18

End

Compiled by Pooja Sawant

Edited by Ashish Shirke

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