Reasons differ, but just one in five IPO retail investors used it last year.
Most retail investors bidding for Initial Public Offers (IPOs) are not using the Application Supported by Blocked Amount (Asba) facility, even after four years of its availability.
Under Asba, an investor’s money leaves his bank account only on allocation of shares; till then, it continues to earn interest. It takes at least 20 days for allotment of shares to retail investors after the issue closes for subscription.
An analysis of IPOs during 2010-11 showed only about 20 per cent of applications of retail investors in the year came through this route, said Prithvi Haldia of Prime Database, which provides primary market data.
According to market players, it is mainly stock brokers who are not pushing for Asba in smaller towns and cities. “In the past one year, over 80 per cent of IPOs were of small-size companies. Most of these companies are little known and take operator support to get their issue subscribed. Thus, those IPOs where operators use dummy investors to subscribe on their behalf do not use Asba and go by the traditional route. Also, brokers in such cases do not get any commission for pushing Asba, a chief reason why the facility has not shown any great results,” said a Mumbai based broker.
That small company IPOs are witnessing high operator activity can be gauged from the fact that 74 per cent or 40 of 54 IPOs listed during 2010-2011 are trading below their issue price. A large number of issues fell by 25-80 per cent. Four IPOs are up less than 10 per cent since listing and three gained less than 20 per cent. As many as 35 issues were subscribed more than thrice. The Punjab and Sindh Bank IPO, subscribed 50 times, is now down 14 per cent from the listing price. MOIL,subscribed 56 times, is now up only seven per cent from the issue price.
Among the top losers are Omkar Speciality, Glyscol Alloys, Commercial Engineering, Microsec Financial, Tirupati Inks, Midfield Industries, Aster Silicate, Tarapur Transformers and Texmo Pipes, all down 50-80 per cent from their listing prices.
Recently, the Securities and Exchange Board of India asked all merchant bankers to ensure banks are paid a commission for the service rendered. However, there is a tussle on between brokers and banks on sharing of the commission. Banks feel short-changed, as they receive lesser brokerage than the brokers, although it is banks which are instrumental in marketing the issue and making clients apply through Asba. Self-certified syndicate banks (SCSBs) are required to collect Asba application forms, block, unblock and unlock investor money and data processing. Data processing was earlier done by registrars to the issue. In the Asba rules, apart from handling share allotment, registrars are only required to fill certain fields in the application form, check the Depository Participant code and mark allotment money and the sum to be returned to investors.
Also, applications in most public issues have been from smaller cities, which are not widely (or seriously) covered by SCSBs. Asba forms are not available in the rural branches of most SCSBs.
