The Hindu Business Line : `IPO grading must be seen as addl input'

Mumbai March 28 IPO grading, that SEBI recently prescribed as mandatory for Indian companies, is to be seen as an additional input in the decision making process, said Mr M. Damodaran, Chairman, SEBI.

Some adverse comments on this are due to lack of understanding of what the product is, he said.

"If you keep a dog as a pet and expect it to perform as a tiger next morning, it is our expectations that are the problem," he said.

For decision-making

IPO grading would be a product that seeks to address a limited canvas that seeks to capture the essence of what is contained in several pages of the offer document. It is for the average Indian investor who does not have the expertise or the time to go through documents to make informed decisions, he said.

This grading would be based on the fundamentals of the company. "The IPO grading will invite attention to negatives that will affect your investment," he said.

It is meant to discourage people who are less than serious in the market, and SEBI is building disincentives (to such people) through the process of engagement for the grading exercise itself.

"What are the more material risk factors to be taken into account?" This is what IPO grading will tell the investor.

"It is entirely possible that even an issue which gets the lowest grading might be attractive at a particular price," said Mr Damodaran, explaining why it must be seen as an "additional input".

Going forward, the product will not remain a plain IPO grading but would address previous issues and, over time, look at the totality of equity of the company. Later it would even make some kind of observation on where a stock figures in the universe of fairly similar stocks. "That will happen only after several hundred companies have been graded," said Mr Damodaran.

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