India’s capital and commodity markets regulator is in talks to cut down the minimum application size for IPOs from Rs 15,000 to Rs 7,500 in an attempt to provide higher subscriptions to retail investors.
“Sebi has received several complaints from retail investor associations that retail investors are unable to get IPO subscription in most of the good IPOs,” a source, who is close to the discussions being held by the Securities and Exchange Board of India, told Moneycontrol.
A second source said, “Sebi is in talks to reduce the minimum application size from Rs 15,000 to Rs 7,500-8,000. If the lot size is decreased, then the number of subscriptions will increase, which is helpful to retail investors.”
The last year saw a host of successful IPOs where the number of retail investor applications was very high.
In the Happiest Minds Technologies IPO, which was subscribed 150 times, retail investors’ subscription was 70.94 times. Similarly, in the case of Mrs. Bectors Food Specialities, the retail subscription was 68 times. For the Mazagon Dock and IRCTC offerings, retail investor subscription was around 36 times and 15 times respectively. All these IPOs opened at a premium but retail investors were allotted fewer shares as compared with their applications.
A market expert told Moneycontrol: “Sebi has limited scope to accommodate retail investors in the IPO segment. The regulator has already given 35 percent special allotment for retail investors for companies which are profitable, and for loss-making companies allotment is fixed at 10 percent of total IPO size.”
Sonam Chandwani, Managing Partner at KS Legal and Associates, said, “A common problem most retail investors face is the inability to get their hands onto good IPOs. However, a probable amendment which aims to bring down the minimum subscription lot size to Rs 7,000-8,000 is likely to benefit retail investors and propel a higher number of subscriptions. Although trading volumes may not be impacted at large, the amendment of norms will inevitably benefit retail investors in the long run, but to a limited extent.”
“If Sebi is pushing retail investors towards mutual funds, then it need not worry about retail participation in IPOs. If, however, they believe that retail investors should participate directly in the market through investing in individual stocks, then this measure is helpful,” said Amit Tandon, managing director of IIAS proxy advisory service.