SEBI raises limit for retail investors to Rs 2 lakh for public issues

Source :MUMBAI:ET:25 OCT, 2010, 05.33PM IST,AGENCIES 

Retail investors will get to double their bets on initial public offerings as the market regulator raised the limit to Rs 2 lakh, the first revision in five years, as it attempts to keep pace with the eroding value of the rupee. 

This will cut the numerous applications investors sometimes make in the name of relatives to get more shares. 

Some say the hike will enrich the wealthy more than the middle class if it is done without an increase in the overall allocation for the retail segment, which is capped at 35%. 

Unlike most developed markets where investment bankers have the discretion to allot shares to their favoured clients in an IPO, the Indian regulator has mandated specified portions that go to funds, wealthy individuals and retail investors. 

Nearly 75% of the retail applications in recent public offerings were for value between Rs 80,000-1,00,000, said a SEBI study. In the non-institutional category, the number of applications below Rs 5 lakh was negligible. 

The portions reserved for wealthy individuals and corporate treasuries have been consistently oversubscribed by 20-25 times as they borrow heavily to benefit from pop-up listing, while in the retail category that depends on savings, it was 3-5 times. 

"SEBI has also deferred a decision on overhauling the country's corporate takeover norms as it needs more time to study the proposals of a panel. SEBI may discuss the proposals in the next board meeting," SEBI chief C B Bhave said. 

In July, A SEBI panel had proposed changes to takeover rules that are likely to offer better terms to minority shareholders , but could cut down the number of deals in the near term.

For IPO opening on or after 1st May 2010 even QIBs have to pay 100% Application Money

Mar 12, 2010

“In the primary issuance process, Qualified Institutional Buyers (QIBs) 

that currently pay only 10% margin while applying will be 

required to pay 100 per cent money in line with what other

investors are required to do for all the issues that open on or after May 1, 2010.”

With these words, Sebi Chairman CB Bhave flagged off a move
that would provide a level playing field in the Indian primary market.

The primary benefit or casualty of this move depending
on which or rather whose glasses one is viewing its implications
from is that the days of IPOs getting oversubscribed an abnormal
number of times, especially on the opening day itself may become history.

Retail investors, especially those who were lulled into a false
sense of security in the belief that QIB (over) subscription for
an IPO on the opening day itself suggested its investment-worthiness
could be beneficiaries to the extent that they will now not be misled and will need to do their own homework before participating in an IPO.

Further, IPOs will need to be better spaced out as QIB funds
which were spread thin across multiple IPOs will now gravitate
towards what they perceive to be the best on offer.

The doors have also been opened for the more active use of
ASBA (which is a mechanism whereby an Application is Backed
by a Blocked Amount) for applying in IPOs.

ASBA considerably reduces the paper-work by blocking
the application money in the account of the applicant and that
amount is debited only at the time of allotment.

Notably, 15 to 20 per cent of retail applications are already currently
being routed through ASBA and with QIBs now needing to put down
a 100% payment, the ASBA route will become the preferred one.

This in turn will make Sebi’s other professed objective of reducing
the lead time between the closing of an IPO to its Listing from
around three weeks to one week a reality, sooner than it would
otherwise have been possible.

The ‘collateral damage’ of this laudable objective which should become
a reality well within the stipulated time frame of a year, will be the
notorious ‘Grey Market’ and its operators.

That this will also ensure against the astonishing and abnormal
listings of otherwise dubious IPO issuing companies will be
a collateral benefit that will go a long way towards clearing
the decks for a more transparent and vibrant primary market.

To sum up, Sebi has displayed great foresight in announcing
this initiative which will ensure that institutional investors
gravitate towards ASBA. This in turn will reduce lead time
to listing and bury the vultures who fed off the long lead time.