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In U-turn, Sebi chairman says not concerned about low retail investors in IPOs

Small investors should come through informed institutional investors such as pension or mutual funds, U K Sinha said

BS Reporter  |  Mumbai 

U.K. Sinha

The Securities and Exchange Board of India (Sebi) has said it wouldn’t be worried at low participation by small investors in the primary market as long as they instead take the mutual fund (MF) route.

Queried over tepid retail participation in some of the recent Initial Public Offers (IPOs) of equity, Sebi chairman U K Sinha said, “We don’t mind if retail investors don’t participate in the IPOs. We would rather like them to participate through institutional investors.”

He was speaking at an event organised by financial planning portal

This year’s two biggest IPOs, of InterGlobe Aviation and Coffee Day Enterprises, had failed to garner full retail subscription (in that segment's quota), raising concerns over whether issuers and bankers were leaving enough on the table to attract small investors.

Sinha, however, said the markets regulator had systems to check on manipulation and to facilitate retail investment.

“While we would like to give comfort to retail investors on legal, administrative and regulatory aspects to invest in equity, if they want to take advantage of the equity markets, they should do it through informed investors,” he said. “They should not enter the primary or the secondary market on their own. They should only enter, in my understanding, through an informed investor or through an agency knowledgeable about the markets, such as mutual funds and pension funds.”

In U-turn, Sebi chairman says not concerned about low retail investors in IPOs
Though the Rs 3,000-crore IPO of InterGlobe, which operates the country’s most-profitable airline, IndiGo, was subscribed five times overall, its retail category remained undersubscribed at 90 per cent. Similarly, Coffee Day Enterprises’ Rs 1,150-crore IPO was subscribed nearly two times but the retail portion was only 90 per cent covered.

Interestingly, the shares of InterGlobe have risen 40 per cent since listing, while those of Coffee Day have declined 25 per cent.

Market experts said they, too, recommended the institutional investor route for entering the market but also said investing in IPOs through the MF route isn’t so straightforward.

“Playing the secondary market through the MF route is recommended for small investors. However, the same can’t be said for IPOs. An investor might want to put in money in only one IPO that he likes. But, when you come through the MF route, you have to take exposure to an entire basket of securities,” said a senior official at a fund house, asking not to be named.

On the commission structure in MFs, Sinha said Sebi would not like to intervene in the commission payouts to distributors; he’d prefer the sector to do what was needed. “If we do not see any activity by (the sector), then we would take action,” he said.

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First Published: Wed, December 02 2015. 22:47 IST