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New IPO rules in India boosting retail participation

ipo-rules-pti-LMarketmen and exchanges hope that the recent Sebi move to streamline the IPO process will give a leg-up to the struggling primary markets as the measures will significantly reduce investor grievances.

Marketmen and exchanges hope that the recent Sebi move to streamline the IPO process will give a leg-up to the struggling primary markets as the measures will significantly reduce investor grievances.

They expect the new IPO norms to help boost retail participation in the market by at least 25 per cent.

Currently, there are about 2 crore retail investors in the market and despite the bull-run in the market last year, there has not been any tangible rise in their numbers.

Leading securities registry services provider Link Intime chief operating officer Haren Modi said keeping in mind the capital markets growth, the new Sebi measures would help increase retail investor base by at least 25 per cent in the next one year alone.

In a major revamp of IPO norms, the Sebi last Tuesday announced making IPO subscriptions cheque-free and also cut down the time taken for listing by half to six days.

The regulator had also said ASBA (application supported by blocked amount), which refers to an application mechanism for subscribing to IPO with the bid amount being blocked in bank accounts rather than that being debited, would be applicable to all kinds of investors.

Hailing the move, the BSE said, “The Sebi measures streamlining the IPO process and listing of startups would definitely encourage more retail participation”.

According to the premier bourse, the move would also encourage many brokers who are predominately engaged in the secondary markets, to focus on primary markets as this opens up avenues for new customer acquisitions also.

The largest exchange NSE too hailed the move.

Its chief regulatory officer V Narasimhan said, “Reduction in the IPO time is a very positive move to exploit banking and trading technology for common good. Primary market investors will definitely welcome this move”.

Noting that 90 per cent of the total amount in recent IPOs came from ASBA, ICICI Securities’ head of capital markets Pranjal Srivastava said making ASBA compulsory is a welcome move, considering its advantages.

“ABSA makes listing simpler and reduces the complexity of issuing cheques and refund of balance money by the issuer,” Srivastava said, adding amendments to the IPO norms will “widen the retail investor base apart from reducing costs”.

However, he observed that bank branches in rural areas need to understand process of ASBA to make these amendments more meaningful.

Link Intime’s Modi also expressed similar views, saying all the ASBA banks have to gear up to take up the task.

However, Yes Bank’s Vikas Dawra is not sure how investors would react to this mandatory ASBA, saying people would either shift to ASBA as the payment mechanism through cheques is no longer available or they may abstain from making IPO application altogether till the time they become comfortable with the process.

He also pointed out that lots of retail investors still apply for IPOs in physical mode through payment of cheques.

“Also, as currently not all bank branches offer ASBA facility, it may turn out to be procedurally challenging for an investor having savings account with a non-ASBA bank branch,” Dawra noted.

Market experts are of the view that the new Sebi norms would bring down the number of investor complaints as non/wrong receipt of application money refund constitutes a significant proportion of IPO related grievances.

“With ASBA becoming mandatory for retail investors also, the IPO process will become less cumbersome for all the intermediaries. This will eliminate the hassles related to refund, which will be a huge procedural relief for intermediaries such as collecting banks, registrar and post-issue lead manager,” Dawra said.

Modi noted that “investor grievances will come down as most complaints are regarding non-receipt of shares and refund as with ASBA refunds will not be an issue”.

On the Sebi move to allow registrar and share transfer agents and depository participants to accept IPO applications, Modi said this would help entities like Link Intime diversify their portfolio but added that pros and cons of getting into broker-like services would have to be first examined.

According to Srivastava, this will increase competition in market between brokers, and depository participants, it will also increase the overall market.

“Allowing submission of bid cum application forms with DPs and STAs will open an additional revenue stream for these intermediaries in terms of brokerage/processing fees on application procured in IPOs,” Dawra said.

HDFC Securities managing director Dhiraj Relli said it is important to activate primary markets and the Sebi moves are “positive measures”.

“With markets overcoming certain short-term constraints more IPOs will come and more e-IPOs will help us get wider retail participation”.

Source: Financial Express, India

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