Short & sweet: Reduced IPO timeline to boost investor participation

Faster fund release will allow retail investors to apply for multiple issues, say experts

Securities and Exchange Board of India’s (Sebi’s) decision to halve the time taken in the initial public offering (IPO) process will allow a higher number of companies to push through their IPOs during phases of conducive market conditions, say experts, citing the possibility that faster turnaround time will boost investor participation.

"The faster release of money will allow retail investors to use the same money to apply in more IPOs. This may allow more companies to try their luck in the IPO market during the short windows when there's vibrancy in the market," said Abhijit Tare, managing director and chief executive officer, Motilal Oswal Investment Advisors.

On Wednesday, the markets regulator announced that its board has approved the proposal to reduce the time period for listing of shares on exchanges after their IPOs from six days to three. Once implemented, applicants will receive shares within three days of the issue’s closure from the current waiting period of six days. Investors who did not receive share allotments can also expect refunds within three days.

The decision is likely to have positive implications for intermediaries like merchant bankers and brokers. Experts say that since the management of the whole IPO process will become less time consuming for the players involved in the whole process, the present ecosystem will become better equipped to handle a higher number of issuances.

"This is a win-win for all the stakeholders. It will save the time and resources of exchanges, merchant bankers, banks, depositories and brokers. The issuer will benefit as he will get the funds in less time. Investors will also get their shares or refund in less time. So the cost of funds for the investor community will come down as they will be able to redeploy the refund amount and also save the interest cost, if any," said Mukesh Kochar, national head, wealth at AUM Capital Market.

However, the intermediaries are likely to face multiple challenges on their way to make the whole process happen in half the time. "It won't be an easy task. A lot of counterparts are involved and there is a lot of reconciliation too," said Tare.

Majority of IPOs hit the market when the investor sentiment for equities is jubilant, leading to a glut of offerings in shorter time spans. As a result, a lot of public offers fail to get the desired investor attention, which ultimately leads to their tepid market listing.

The lock-in period of investor funds for almost 10 working days from the start of the issue also leads to retail investors missing out on other offerings in the same period. Senior industry officials believe that the Sebi move could lead to some relief for issuers in this aspect.

Step by step: The present IPO timeline
 

Under the new rule, the credit of shares will happen within 3 working days after the offer closes. Presently, it takes 6 days

Day 1: Offer opens

Day 3: Offer closes

Day 8: Finalisation of basis of allotment

Day 9: Unblocking of funds from ASBA accounts

Day 10: Credit of equity shares to demat accounts