SEBI has found the right panacea for moribund primary markets — encourage new age startups to list within the country. The regulator is attempting to make this happen through the proposed alternate capital-raising platform. The number of IPOs has whittled down to single digits in the last couple of years, if the listings on the SME platform are excluded. Most of the interesting startup stories are currently in the software development or e-commerce space and making these companies list in India can give a much-needed boost to both the primary and secondary markets.

The market regulator has framed a set of rules keeping the issues faced by these companies in mind. The disclosures to be made at the time of the issue have been greatly diluted, and the stipulation for locking in the promoters’ holdings has been relaxed considerably. It is also not mandatory to state the earnings per share, price-earning ratio and so on while making the offer.

But will this platform achieve its objective? The manner in which the platform is designed — minimum application size in the IPO ₹10 lakh, minimum number of allottees 500 and minimum trading lot ₹5 lakh — will keep the small investors away. Trading will also be difficult and liquidity is likely to be extremely thin. Exchanges might have to conduct trading on this platform through hourly call auctions.

It is unlikely that promoters who dream of a blockbuster listing akin to Alibaba and Twitter would wish to divest stake in a quiet manner through this platform. Again, promoters of these companies, many of which are loss-making, will find it difficult to sell their business prospects effectively to the Indian investor who typically tends to be very sensitive to valuation. This would make many promoters prefer an overseas listing despite SEBI’s red carpet.

Deputy Editor and Head of Research

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