I-bankers want retail limit linked to issue size

While welcoming the regulator’s move to raise the retail investment limit in public issues, investment bankers say a lot more needs to be done to attract small investors to the equity market.

According to a section of investment bankers, the Securities and Exchange Board of India (Sebi) should look at a graded structure, wherein the cap on the individual investment limit corresponds with the size of the offer.

In other words, the larger the issue, the higher should be the investment limit for retail investors, they say. This, according to them, will lead to significant participation by retail investors. Also, high net worth individuals (HNIs) will vie for allocation only within the non-institutional investor portion, they say.

“A graded structure will work fine in the Indian market given the range of issue size,” says the head of a leading foreign investment banking entity. “Here, we have issues as small as Rs 45 crore to as big as thousands of crores of rupees. A cap, obviously, cannot serve the purpose. For an issue of, say, more than Rs 15,000 crore, we could cap retail applications at Rs 5 lakh,” he said.

Sebi, in a discussion paper released on Wednesday, proposed enhancing the retail investment limit in public issues to Rs 2 lakh from Rs 1 lakh, which was set more than five years ago. Sebi says approximately 75 per cent applications in the retail segment in recent issues have been in the range of Rs 80,000 to Rs 1 lakh. Market participants have been asked to submit comments on the proposal before September 3.

Another investment banker cites the example of the forthcoming initial public offer (IPO) of Coal India Ltd in which the retail segment size is expected to be more than Rs 4,000 crore. “Assuming that every single retail investor puts in an application for Rs 2 lakh, we will require more than two lakh applications for the retail segment to be subscribed one time,” he said.

“Sebi’s analysis shows that the number of retail applications was in the range of 35,000 to 70,000 in some of the recent issues that were ‘well oversubscribed’,” he said.

Prithvi Haldea of Prime Database, however, differs, saying that “there are enough instances of issues where lakhs and lakhs of investors put in bids”. “Look at the statistics of Maruti or VSNL, or even Reliance Power. The number of applications was huge. If we increase the cap (on retail investment limit), we will be creating a sub-HNI segment,” said Haldea.