Will new norms for QIBs impact public issues?

Excerpts from Your World at 10 on CNBC-TV18 Watch the full show » RELATED NEWS QIBs will have to pay 100% for IPO application: Sebi

Q: Do you think that we should be eventually moving back towards the discretionary allotment system if we want institutional investors to put a 100% upward?

Mehta: I think that will motivate them to come in the book because at least they are sure what they are going to get allotted. I somewhat agree to what Mr Parekh said that it has to be a balanced system. So I would say instead of 30% you can still have 50% as discretionary and 50% of open book because at least somebody is assured of certain allocation with a proper lock-in. So maybe you increase lock-in period from one month to three months or something like that, but at least have the higher proportion of the book discretionary, so one can at least get some allocation guaranteed and the other party can bid in the open book which is open for everyone.

Q: Apparently on behest of Sebi, the exchanges have sent out a notice to bankers saying you now need to keep your book invisible to the other bankers in the course of the public issue while it is open, what are the implications of that?

Mehta: I am not too sure whether that is out yet or not. But I can only say that there are two ways to look at it which is the current system which is right now the bankers know about the books and they get a consolidated book every one hour. I think that makes more sense to have a live book. If at all that system continues by which every investor knows at every given time what does the book looks like because that makes it more efficient and people are more transparent in that rather than waiting for an hour and specially now that the book building moves to the last day and the last few hours of the day, it will be much more useful if people have the information live that is part one.

Part two, in case if they move to a blind system where nobody knows at all, I think that end of the day people should come in any IPO if they are sure on what they are going to buy. So, if they are more convinced on the stock and the price at which the IPO is coming, the book not visible doesn't make any difference to them for applying in the book, if they are reasonably confident on what they are buying out.

Q: The days of getting lured by very high oversubscription numbers are over, is it?

Mehra: Not necessarily. As Mr Mehta said I don't think the firm guidelines are out as yet. But I would tend to agree to what Mr Mehta said because I think it is important everyone make an informed decision and in any stock issue QIP or IPO, there is certain momentum that builds up around any issue. The momentum is a positive thing usually nine times out of ten for an issue and with that positive momentum comes oversubscription, comes success of an issue. So I think we should be careful in terms of evaluating a blind book versus a transparent book.

Q: At least retail investors will no longer get lured by the numbers that they see flashing on all the tickers of the business news channels regarding 12% subscribed, oversubscribed and all of that, right?

Parekh: Still I would hugely support a transparent book because 99% of retail investors are price takers. They apply at what is known as a cut off price, so they are not bidding in this entire issue. So I would strongly support maintaining an open order book in which people know what is happening. Again we are going to see the same problem which we saw in the French auction which is people become overly cautious if they see that it is a blind book and they are going to be stuck with something which they don't want after looking at other bids. So I think it is a negative move.