Ridiculous if Sebi mulling 6-mnth return guarantee for IPOs

Various proposals expected to be discussed and approved at SEBI’s upcoming board meeting on August 16 also include introduction of e-IPO, which would allow investors to bid for IPO shares electronically and without any physical paperwork.

They are talking about raising allotment for retail investors etc, and that's okay. But the problem with the primary market is not retail participation and retail participation will not change by allowing them to buy or bid for more in IPOs, says CNBC-TV18's Udayan Mukherjee. "So if the expectation is that this will galvanize the primary market and we will see a lot of issues and that will change the sentiment in the market, the answer to that in my eyes from whatever one's reading in the media about this board meeting agenda, is firmly no."

According to a senior official, the key proposals for reforms in primary market include introduction of a 'safety net' guarantee for investors buying shares through IPOs.

As per the proposed mechanism, a certain portion of the investment made by retail shareholders in the IPOs could be guaranteed for a fixed period, which could be for six months, even if the shares' value plunges below the IPO allotment price during this time.

This goes against any grain of equity market investing, claims Mukherjee. 

"How can a company be asked to take a market risk for six months? I hope that SEBI is not toying with this idea, because it will be lapped up by retail investors' association saying, "great we want that", but it would be horrific thing to do for the primary market to go down that alley. Equity is full risk. You understand that. You walk in. You don't want to play the game, be in fixed deposits. Which company can assure retail investors IPO market safety? That's ridiculous in my eyes and if any stock market regulator is considering that. I think they are barking their way up to suicide," he says.