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e-IPO Will Ruin Retail Investors

February 25, 2015 - Mumbai, Maharashtra, India

Business Wire India
Proposed 'eIPO' will ruin retail investors as well as capital market intermediataries like share brokers, registrars, printers, advertising agencies etc. Under the pressure of FIIs & impact of West, SEBI is acting with haste to implement ‘e-IPO’. In fact, most investors are illiterate and sign on dotted lines after verifying basic details filled by local sub brokers. Sudden changes may lead to frauds and will be deterrent to the basic objective which SEBI intends to achieve. A gradual shift with both options, i.e. physical forms along with the parallel electronic system at least for 3 years is the right and practical approach which SEBI should adopt, stated Mr. Shiv Kanoria, Honorary General Secretary of Bharat Merchants' Chamber.

Securities and Exchange Board of India (SEBI) has been working out to bring “e-IPO”. There are 3 objectives of SEBI to implement the ‘e-IPO’ norms, viz. reduced time, reduced cost and help retail investors. It is envisaged that, the post issue timelines will reduce  T+12 days to T+6 days. Once the process gets stabilized, timeline can be further curtailed to T+3 1/2 days.

It has been seen over the years that the base of individual retail investors has been shrinking and taken over by FII and other corporate institutions. This has been evident in reduction of applications over the years. In fact, immediate implementation of ‘e-IPO’ will reduce participation of retail investors tremendously and may turn out to be graveyard for retail investors. A classic example would be Coal India public issue. In the year 2009, the first public issue of Rs. 17,000 crore of Coal India had 12 lakh applications from retail investors. Against this, recent public issue of Rs. 22,000 crore of Coal India received only 1 lakh applications from retail investors. This was in spite of providing 5% discount on issue price to retail investors. This has been the normal trend with most of public issues where retail participation has kept on reducing. ‘e-IPO’ will drastically reduce retail investors.

There are 23 registered investors associations and SEBI has invited them for a meeting on 13th march 2015 where this issue will be also discussed.

 The ‘e-IPO’ norms will in fact prove to be detrimental to the retail investors. In the existing system in the abridged prospectus, all details are available and in new proposal, everything will be available only online. Hence internet connection is a must. As compared to the country’s population, the penetration of internet is only 19.19%. All market investors are not internet savvy. The farming community is fast emerging as a dominant investing community and the extent of usage of internet amongst the farmers is very low. With only one out of five of the country’s population having access to the internet, with usage restricted by low bandwidths, a proposal to do away with printed application forms would be suicidal as it would defeat the objectives set by the Finance Minister that the offerings should reach retail investors far & wide. Moreover, in rural areas there has been always the issue of power failure and in the absence of power, computers and internet connections will not work.
It has been seen over the years that the base of individual retail investors has been shrinking and taken over by FII and other bulk institutions.

In the current scenario, investors can only have demat account and apply for IPO, but with new rules, they need to have demat as well as broker account.  As such, it will be detrimental for new investors to  enter the market where they have to now open accounts with brokers instead of only demat account. During market hours, brokers will remain busy in the secondary market and will not be able to devote sufficient time to bid for investors for IPO, since in tier2 and tier 3 cities, number of screens for trading are limited. Normally, retail investors prefer to bid on last day, but in the eventuality of non availability of power on last day, biddings may not take place.

Source: Business Wire India


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