When securities regulator SEBI changed the payment method for retail investors buying into public issues starting this January, under which the application amount is blocked in investors’ bank accounts, there were worries that this would inhibit their wider participation. However, early indications from the two IPOs that hit the market last month show that such concerns may be overstated.
Of the two IPOs in January, the retail investors component of auto ancillary company Precision Camshafts’ issue was subscribed by two times; staffing company TeamLease Services’ issue fared even better, and was subscribed by over 10 times.
In June last year, SEBI decided that retail investors participating in public issues from January 2016 would be required to use the ASBA system (application supported by blocked amount) and not pay through cheques.
If you are buying into an initial public offer, under ASBA, the bank blocks your application amount in your bank account for the entire IPO period and transfers the money once you are allotted the shares. This is an improvement over the earlier system of making payments through cheques, where investors would have to wait for a refund if they were allotted no shares or allotted fewer than they subscribed for. All other categories of investors have already been migrated to the ASBA system.
An investment banker who handled one of the two issues, and did not wish to be named, said brokers and bankers had been concerned because until December, over half the retail investors had used cheques for IPO subscriptions. “The response from retail investors to the two IPOs was good,” he said. “But we may have to wait for more offers to come to the market and gauge how overall retail participation has changed.”
Trivikram Kamath, Head, Operations, Finance & Technology, Kotak Securities, said the shift to ASBA is beneficial to both issuers and investors. “If an investor isn’t allotted shares, he doesn’t have to wait for a refund. An issuer, on the other hand, won’t have to worry about investors’ cheques being dishonoured.”
“SEBI introduced this system to reduce the time gap between an issue and the listing of shares,” he added. Right now, this gap stands at T+6 — the stock is listed just six days after the issue closes — down from the earlier T+12. As of January 25, some 62 banks are ASBA-enabled.
“The branches of most banks offer ASBA to IPO investors,” Kamath added. However, branches in small towns were not up to speed on this, said Vijay Singhania, Vice-Chairman of brokerage firm VNS Finance and a senior member of broker associations at the BSE and the NSE.
Some brokers, especially those outside urban centres, worry that clients will migrate to broking services offered by banks to smoothen the ASBA process . But Kamath of Kotak thinks this may not happen. “SEBI is constantly increasing the number of centres where investors can submit their applications, including involving offices depository participants (such as NSDL) and registrar and share transfer agents (such as Karvy). “I think the regulator might also increase the broker network for IPOs, and not restrict it to syndicate members.”