It’s surprising that SEBI Chairman Ajay Tyagi should express concern in public about companies delaying public offers despite the regulator giving the green signal. Since the primary market for stocks is governed by demand and supply, similar to other markets, companies can’t be faulted for waiting for conducive market conditions in order to get a better price. While it’s true that investment bankers advising companies have been over-ambitious in many cases and had raised the asking prices to unfair levels using irrelevant benchmarks, the market has a way of taking the prices to fair value, over time. There is little need for the regulator to intervene in this matter.

There are various reasons why primary issuances on the main board have dried up after October and over ₹60,000 crore of IPOs are yet to hit the market despite regulatory clearance. One, the appetite for mid- and small-sized stocks has waned since the meltdown in the prices of such stocks since the first quarter of this calendar year. Governance concerns dogged many of these stocks, making investors grow wary of them. Two, many of the stocks that listed in the early part of the year are currently trading below their offer price. This under-performance would have made investors think twice about primary issuances. Three, many investors had also been investing in the primary market with the intention of exiting on the listing day with a good profit. While many primary offers in 2017 and early 2018 had indeed delivered hefty gains on listing day, as these gains evaporated with the market down-cycle, the demand for IPOs has also been lower.

While it would be ideal if companies were able to raise funds from the primary market irrespective of the market cycle, it is not possible in reality. The regulator should therefore cease to fret about this and instead focus on ironing out dubious practices in primary issuances. For instance, the price discovered in the pre-listing call auction needs to undergo higher scrutiny to ensure that there has not been any wilful effort to make the price open at a higher level. The trades on the listing day also need to be under higher surveillance as it has been seen in the past that stock prices have been taken higher through circular trading to provide an exit to certain subscribers. Similarly, ensuring that all the relevant disclosures are made in the offer document is also important to enable the investor to make an informed decision since publicly available information on unlisted entities is limited. Surveillance also needs to be tighter in smaller IPOs on the SME platforms, where the listing regulations are more lenient.

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