Dejà vu for retail investors

The last time the National Democratic Alliance (NDA) government had conducted a share-sale in a public sector undertaking (PSU), in 2004, it was a disaster for applicants, especially retail investors. The hurriedly-completed Oil and Natural Gas Corporation follow-on offer easily finds its way into a list of major goof-ups in the past 10 years. The Hindu Business Line dated April 11, 2004, termed it a "fiasco", through which some got more shares than they paid for, others neither got shares nor refunds, etc. Addressing the complaints took years.

For some small investors, the first share-sale by the new NDA government is turning out to be as bitter an experience. These investors claim the allotment process for the Steel Authority of India Ltd (SAIL) offer for sale, concluded early this month, ignored their status as 'retail investors' and failed to give them the five per cent discount in price promised by the government. For an application of Rs 2 lakh, the discount works out to Rs 10,000.

Each of these investors is losing out on this significant sum due to what prima facie appears to be a clerical error resulting from last-minute circulars, process changes and communication gaps. The very definition of 'retail investor' hinges on the amount of the investment: "Retail investor shall mean an individual investor who places bids for shares of total value of not more than Rs 2 lakh."

However, despite falling within this parameter, many investors are being denied their due because their bids landed in the wrong category in the bidding system. Manan Panchal of Rajvi Stock Broking, an Ahmedabad-based brokerage firm, has written to the Securities and Exchange Board of India (Sebi) and the Department of Disinvestment, saying his clients had lost Rs 8 lakh on an allotment of about 0.2 million SAIL shares.

While the exchanges argue entry in the wrong category makes them ineligible for discount, brokers say the circular has no such condition. In fact, Panchal's complaint states during a mock trading session a day before the SAIL share sale, he made a bid entry in the 'RI' (retail investor) category, but the entry was rejected. "So, we called the BSE regional office in Ahmedabad and also in Mumbai. They told to us members could also punch their orders in the 'RI' and 'NII' (non-institutional investor) categories for retail investor," he wrote.

In response to Street Food queries, BSE, the designated exchange for the sale, said 'frequently asked questions' (FAQs) published by the bourse had clearly stated bids made in other categories wouldn't be eligible for retail discounts/reservation. It also supplied another undated document titled 'allocation methodologies of OFS', which also had entries to the effect that bids in the NII category weren't eligible for discount.

Brokers and investors argue they went by the circular, which had no reference to the FAQs, and that the government's offer for discount was for 'retail investors', not any jargon coined by the exchange's systems department.

Now the shares have been allotted and the money has reached government coffers, resolving the issue is beyond any exchange or intermediary. The finance ministry and Sebi, whose help it is not shy of seeking often, should move fast to deliver on the promise, before things snowball, more so because it has to sell Rs 40,000 crore of shares to and through these people in three months.