Investors won’t return if they lose money in primary market’

While most of the new issues of the past have been trading below the issue price, 56 % of this year's IPOs are trading above the issue price

Attributing better performance of recent initial public offerings (IPOs) to easier norms, the Securities and Exchange Board of India (SEBI) Chairman, U. K Sinha, on Tuesday said retail investors may not invest again if they lose money in the primary market.

“If retail investors feel they are continuously losing money in the primary market by subscribing to IPOs, they may not invest again,” SEBI Chairman told an investment bankers’ summit here.

Notably, the IPO market has seen a boom this year after a near-drought situation in the past five years. Companies such as InterGlobe, CCD, Alkem and Dr. Lal PathLabs, among others got tremendous response to their issues this year.

While most of the new issues of the past many years have been trading below the issue price, 56 per cent of the IPOs this year are trading above the issue price.

Attributing the better performance of the new issues partly to enabling regulations in the IPO market, such as reduced time to process and clear DRHPs, Mr. Sinha said the new IPO norms will be effective from January 1.

“If you look at data, the time taken by SEBI in examining and issuing observations on IPOs has come down by half now. Part of the reason for the delay in the past was that SEBI had proposed a safety net for retail investors in the IPOs,” he said.

“If you look at data prior to 2013, more than two-thirds of the new issues were trading below issue price. Obviously, it had impact on investors. But I am happy that IPOs that have come this year, 56 per cent are trading above the issue price,” the SEBI chief said.

On the IPO market, he said the total primary issues in FY15 were worth Rs.9,700 crore, but this fiscal it is Rs.18,300 crore, out of which Rs.16,150 crore would come from sectors such as healthcare, education, hotel and restaurants, while there are no issues from banks, and power companies which have been traditionally active.

He also said the regulator has taken up with Reserve Bank of Indi (RBI) and the banking lobby Indian Banks Association to train bankers on ASBA so that retail investors’ money is not blocked indefinitely by participating in IPOs.

On the proposed exit options and convertible issues, he expressed hope that comments from the public and other stakeholders would be in place soon so that SEBI could issue the final guidelines soon. “Our intent is to implement these norms early as possible,” he said.

Describing the rising bad loans in the system as worrying, Mr. Sinha said the RBI report on top 500 companies shows that they are utilising only 71 per cent of their installed capacity.

“These companies are not in financial and banking sector. The worry is that these companies are hugely leveraged. One third of them can’t even generate net accruals to meet their interest obligations. One estimate is that Rs.7 trillion worth equity would be required if these companies don’t generate internal cash,” he said.

Regulation on municipal bonds have taken care that only solvent municipalities will issue bounds.

He also said SEBI is looking at the role of credit rating agencies and debenture trustees in the issuance of bonds.

On the call to regulate also trading, he admitted that this is challenge. On the much-talked about common KYC norms for all financial markets investments, the SEBI chief said this would take some more time.