IPO price discovery imperfect, long-term retail investors should invest after price settles: SEBI’s Madhabi Buch

Madhabi Puri Buch. SEBI refused to intervene in the pricing of IPO in the past.

Madhabi Puri Buch, the chairperson of the Securities and Exchange Board of India (SEBI) on June 28 acknowledged that the price discovery during the initial public offering (IPO) is imperfect and many times prices don’t last.

She was addressing a question that pertained to any discussion on increasing retail quota on IPO.

“If a retail investor is coming to the market with a long-term view, then he should think what is the hurry? Big investors want to take big block deals, that is why they come to IPO so that their cost of acquisition is in check,” said Buch. “Retail investors, from a risk management point of view should come in after the price has settled in, maybe after a quarter.”

However, if they are speculative traders and take a punt, then that person has to bear that kind of risk, she added.

She was referring to several IPOs, especially those of new-age tech companies such as Paytm, prices for which tumbled soon after the listing leaving investors nursing a loss. This led to some investors asking for SEBI intervention in IPO pricing.

The market regulator has refused to intervene in the pricing in the past.

Meanwhile, SEBI reduced the listing timeline after the IPO to three days after the closure of the issue from the present T+6 at present. 'T' is the day the issue closes for the subscription.

"The revised timeline of T+3 days shall be made applicable in two phases i.e. voluntary for all public issues opening on or after September 01, 2023 and mandatory on or after December 01, 2023," SEBI said.

This will ensure that issuers have faster access to the capital raised, thereby enhancing the ease of doing business, and the investors have an opportunity for early credit and liquidity of their investment, the market regulator said.

Analysts welcomed the move.

“We appreciate this welcome move of the SEBI as one of the primary advantages of the shorter listing duration is that it will expedite the flow of funds to issuers,” said Aayush Agrawal, AVP-Merchant Banking, Swastika Investmart.

“The shorter timeframe will bring tangible benefits to all stakeholders involved, facilitating faster access to funds for issuers, expedited allotment of securities for investors, and quicker refunds for non-allottees.”