IPO frenzy: Better for retail investors to invest through secondary market, says SEBI chief Madhabi Puri Buch

SEBI Chairperson Madhabi Puri Buch (File pic)

Amid a flurry of initial public offerings by companies, SEBI chief Madhabi Puri Buch on November 25 said the IPO price discovery mechanism isn't perfect and it would be a better strategy for retail investors to wait for the price to settle and then invest through secondary market.

Buch was addressing a press conference in Mumbai after SEBI’s Board meeting.

“IPOs price discovery mechanism isn't perfect. If institutional investor has to buy, they have to buy big... they can't buy in secondary market. But retail investor needs to buy small, so better strategy (is) that they wait for price to settle after IPOs, see the quarterly results etc... and then invest through secondary market,” Buch said.

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The comments come amid retail investors making a beeline for IPOs.

The total bids for five IPOs that opened this week have surpassed a whopping Rs 2.5 lakh crore, excluding the anchor investors' allotment, which happens a day before the public offer opens.

Tata Technologies’ public issue alone has garnered bids worth over Rs 1.56 lakh crore (assumed estimate at the upper end of the price band at Rs 500 per share), being oversubscribed 69.43 times the issue size.

The first public issue from Tata Group since the Tata Consultancy Services IPO in 2004, was fully subscribed in the first hours of opening.

Also Read: Rs 2.5 lakh crore garnered by 5 public issues this week

On crowding in the IPO market, Buch further said, "Regulator should not intervene because we might be taking away from opportunity, but there is a natural check and balance in the market, investment bankers make that assessment, checking if there is a crowding in the market.”

“As far as the capacity for institutions to handle this load, we have not faced this problem... during T+3, we had done stress testing (for intermediaries and infrastructure institutions)... at the end of the day market forces operate," she added.