Appropriate public issue pricing crucial: Sebi chief to investment bankers

Seeking to send out a strong message, Sebi Chairman Ajay Tyagi on Wednesday said it was incumbent upon the merchant banker community to not only follow the regulations in letter but also in spirit as he emphasised that appropriate pricing is crucial for public issues.

While urging merchant bankers to engage in wider consultations as for a proper balance between the issuers' aspirations and investors' interests, he also said that "needless to say, Sebi will not shy away from taking required action if it finds any intermediary not adhering to its mandate".

His remarks assume significance against the backdrop of instances of prices of shares slumping steeply at the time of listing compared to the price at which they were sold in initial public offerings (IPOs).

In addition, the regulator will tweak rules for new-age technology companies, Tyagi said at the Association of Investment Bankers of India's (AIBI) annual summit.

The Sebi chairman has also listed out responsibility of merchant bankers that includes protecting interest of investors, conducting business with fairness an integrity, ensuring true disclosures to investors in a timely manner, so that investors are made aware of attendant risks before taking investment decision.

"It is incumbent upon the merchant banker community to not only follow the regulations in letter but also in spirit.

"It may be an opportune time for AIBI to reflect upon and review the standards of due diligence adopted by merchant bankers in various issue management activities offered by them," Tyagi said.

The ongoing fiscal proved to be a bumper year for the IPO markets as 76 initial share-sales raised more than 90,000 crore as of November. Moreover, participation by retail investors in the primary equity market has also jumped.

The number of applications from retail investors in IPOs totalled 5.43 crore so far this fiscal against 3.8 crore in FY21. The average number of retail applications stand at 15.65 lakh for 2021-22 (till November), Tyagi said.

He further said growth in the primary market is accompanied by various challenges, including in the form of non-traditional business models of issuers, disclosure requirements for new-age technology companies and valuation-related apprehensions.

"Typically, the new-age tech companies are loss-making at the time of listing and the extant regulatory framework acknowledges that. Going forward, based on experience gained and stakeholders' feedback, there would be learnings and the need for appropriate tweaking of regulations," Tyagi said.

The Securities and Exchange Board of India (Sebi), which came out with a consultation paper in this regard in November, will soon take a view on the issues raised in the paper, he added.

The regulator, in its consultation paper, proposed putting a cap on IPO proceeds earmarked for making unidentified future acquisitions and monitoring funds reserved for general corporate purposes.

Also, the regulator suggested certain conditions for offer-for-sale (OFS) by the significant shareholder and recommended that 50 per cent of the anchor book should be given to those investors who agree with 90 days or longer lock-in.

Notably, 2021 has seen a number of tech-led startups get listed on Indian stock exchanges. A stellar response to Zomato's IPO, and a profitable listing in July has prompted a number of internet-led businesses to make a beeline for this route.

Since then, a number of internet-led businesses, including Nyakaa, Paytm and PolicyBazaar, got listed on the exchanges also. However, Paytm, one of the most-awaited IPOs, witnessed lacklustre listing and continues to trade below its offer price of Rs 2,150 a share.