Sebi told to educate retail investors on PSU stake sale

To push to participation in the government's disinvestment programme, the finance ministry has written to the Securities and Exchange Board of India (Sebi) to promote awareness among retail investors about the coming issues of public sector units (PSUs).

As the government is planning to tap the markets through the auction route, retail investors might not find it easy to bid. The finance ministry has told Sebi it should try to spread awareness through tickers on TV channels, websites and bulk messages.

"Retail investors don't know at what price to bid. It is a big challenge. We have written to Sebi to start working towards informing and educating such investors," said a ministry official, who did not wish to be identified.

Addressing the Sebi board last month, finance minister Arun Jaitley had also asked the market regulator to work towards attracting more retail investors to the capital markets.

Experts said more than regulation, it is the bullishness in the market that affects retail participation. "As there is a money-making opportunity in this environment, one expects investors to learn processes and dynamics very fast," said Jagannadham Thunuguntla, chief strategist at SMC Global.

The government will divest its stake in PSUs through offer-for-sale (OFS), considered more convenient and less time-consuming than follow-on offerings.

Currently, 35 per cent is reserved for retail investors in follow-on issues, but there is no such reservation in OFS. To encourage retail participation, the Sebi had modified the OFS framework in August to mandate at least 10 per cent of the total issue size for retail investors bidding for shares, with a total value of up to Rs 2 lakh.

The government is planning a quota of up to 20 per cent and discounts to retail investors, while divesting stake in public sector enterprises through the OFS route. The quota percentage would depend on the size of the issue and decided on a case-to-case basis.

According to the revised OFS guidelines, the seller - the government in this case - would have to announce the intention to sell shares two days prior to the OFS. The floor price will have to be declared a day before. At a meeting between brokers and finance ministry officials last month, traders had said more time should be given as a two-day notice might not be enough for retail investors. The government's worry is that if more time is given, market manipulators might hammer down the stock price, resulting in lower proceeds for the exchequer.

The retail portion might not get fully subscribed if investors find it difficult to bid. If there is under-subscription, the remaining reserved quantity for the retail category will be carried forward and merged with the general category quota. If there is over-subscription, all the bids in this category will receive proportionate allotment at the last clearing price. The residual demand will not be carried forward for further allotment along with the general category.