Sebi frowns at low retail IPO demand

Tepid retail participation in the two recent marquee public floats-InterGlobe Aviation and Coffee Day Enterprises-has caught the eye of market regulator Securities and Exchange Board of India (Sebi). According to sources, Sebi is planning to raise the issue of low retail interest with investment bankers of the two transactions. The retail quotas in both the offerings were undersubscribed even as the issue was lapped up by institutional investors. The market regulator is also likely to take up the issue with the investment banking fraternity during their annual conference scheduled to be held on December 15.

An email sent to Sebi on the matter remained unanswered.

Coffee Day raised Rs 1,150 crore, while IndiGo raised over Rs 3,000 crore from their IPOs. Both the issues were biggest in nearly three years. IndiGo attracted 133,240 applications from retail investors, those investing less than Rs 2 lakh. Coffee Day, meanwhile, saw around 113,366 retail applications.

The retail applications for some of the smaller IPOs such as VRL Logistics and Syngene International were much more.

"Sebi has dropped its tough stand towards handling of IPOs and investment banks. However, if Sebi sees something isn't in order, it will definitely take action. The regulator wants to know the factors behind fewer retail applications in the recent IPOs. Whether the issues were marketed properly," said a source privy to the development.

Sources said Sebi will also raise other issues pertaining to the primary markets at next month's annual conference of Association of Investment Bankers in India (AIBI), an industry body for investment bankers.

Amongst other issues the merchant bankers are likely to take up the startup listing platform. The bankers are looking for clarity on how the Institutional Trading Platform (ITP) for startups different from the one available for the Small and Medium Enterprises (SME).

"Retail investors perceived the two IPOs to be expensive. Also, not many expected the issues to make good listing gains. That's the reason probably most investors gave it a miss," said an investment banker asking not to be quoted.

Shares of IndiGo had rallied over 15 per cent on day one, while Coffee Day fell around 18 per cent on debut.

Some experts believe if retail investors are choosing to invest through mutual funds then low retail participation in IPOs shouldn't send a wrong signal.

"The institutional investors are the ones that are involved in the market making. The concern for retail investors is generally not around making returns but the safety of their investments. There are safer options available for retail investors such as mutual funds to be part of the equity market,"said Pranav Haldea, MD, Prime Database.

Earlier, Sebi had toyed with the idea of 'safety net' for IPOs to ensure retail participation. Under the proposed safety net mechanism in IPOs, the promoters, were required to buy back the shares if the share price fell below the issue price by more than 20 per cent within three months of going public. The company would have been needed to buy back shares worth up to 10 per cent of the issue size from retail investors.

The proposal had faced resistance, forcing the regulator to drop the idea.