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Pulling up merchant bankers for harming retail investor interest through IPO pricing, Securities and Exchange Board of India said it expected better due diligence from them.
Addressing a summit of the Association of Investment Bankers of India, SEBI Chairman U.K.Sinha said: “Between 2008-09 and 2011-12, there have been 117 issues. (Of which) 72 issues are trading not only below the issue price but also below the price after adjusting for market decline. If two-third of the IPOs are trading below issue price then there is something wrong.”
V. S. Sundaresan. Chief General Manager, SEBI added: “On the pricing front we are not satisfied with the performance of the merchant bankers. We expect better due diligence from them.”
Sinha further added that the Indian retail investor was thoroughly confused about what to expect from the primary market. “This is a question of credibility for all of us and we have to take serious steps to restore that credibility. Some amount of introspection is required and if we fail, then despite all our efforts we will not be able to draw retail investors and even domestic institutional investors.”
The chairman also likened the role of merchant bankers to that of marriage match makers driving home the point of credibility of investment bankers. However he added that unlike the marriage market where the match maker could get away, in the IPO market there is a regulator which has a public role to perform.
He said there was a mismatch between the information regarding the company given by merchant bankers and the ground realties which was harming retail investor interest.
“Some of those IPOs gave us the impression that due diligence was not being done. There were assertions being made about physical assets being in place and those physical assets were found to be never there to begin with. So now what SEBI has done has helped you in asking those questions to the issuer. You have now got a moral right to demand more information and see it,” said Sinha.
The SEBI chief also stated that to reduce price manipulation, the regulator was working on reducing the gap between the IPO closing day and the listing day. “This is an important area that we are working on. Once we have about 1000 ASBA centres throughout the country coupled with e-IPOs this will be able to take off,” he added.
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