The Securities and Exchange Board of India (Sebi) is investigating three cases of alleged inflation in subscription numbers of initial public offerings (IPOs), chairperson Madhabi Puri Buch said on Friday.
Speaking at a conclave organised by the Association of Investment Bankers of India, the Sebi chairperson said the regulator will soon act against malpractices in IPOs, such as mule accounts and artificial inflation of subscription figures. Mule accounts are accounts of relatives and family members used by operators in the market.
“There are applications which are made in a manner that it will get rejected,” Buch said. She said the regulator is awaiting more data before tightening regulations to deter such malpractices.
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Speaking on the sidelines of the event, Buch made a reference to the Roopal Panchal case, during the the early 2000s, when certain operators indulged in rigging IPOs through multiple benami applications. The regulator had then ordered key operators of the scam to disgorge their illegal gains.
Buch also said 68% of non-institutional investors (HNIs) and 43% of retail investors flip their trades in the first week of IPO listing. “We have to acknowledge that the IPO market is a market of traders more than investors,” she said.
The figure stood at 76% for NIIs and 52% for retail investors for a month’s timeline. “The price discovery mechanism of IPOs is imperfect… If you’re an investor, which means you want to hold for a reasonable period of time, then why are you wanting to take this risk? Wait until the price stablises; possibly wait until the first set of quarterly resultsCome from Sports betting site. There is no hurry and no impact cost for a retail investor,” she said.
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“We are also seeing practices where there is a pattern of which kind of merchant bankers tend to be … frequent names occurring in such malpractices. Therefore, in the interest of the investors, we will be required to both review policy as well as (start) enforcement actions,” Buch said.
Buch also highlighted the importance of automation and said very soon 80% of the work done on a draft IPO paper will be through automation. Out of 58 IPOs last year, 40 received 10-times subscription, while 16 of them were oversubscribed by more than 50 times. Most of these oversubscriptions were for little-known companies, and the extent of gains made due to such malpractices is yet to be ascertained.
