 "Retail investments to shrink as new IPO system comes into play")
The Initial Public Offering (IPO) of Precision Camshafts, which opened on Wednesday, is the first issue that will list in just six days after closing (known as T+6 in market parlance).
The Securities and Exchange Board of India (Sebi) has cut the IPO listing timeline by making Asba (applications supported by blocked amount) compulsory for retail investors. Asba is a facility where investors’ money remains blocked in the bank account until shares are allotted. Retail investors are those investing up to Rs 2 lakh.
Investment bankers say lack of reach and familiarity of the Asba system could make a dent in the retail participation in the ongoing IPO of Precision Camshafts and that of TeamLease Services, which opens next week. At least 25 per cent of the investors who applied in recent IPOs might be left out, they add.
The concerns stem from the fact at nearly 75 per cent of applications in the previous three IPOs, including Alkem Laboratories and Dr Lal PathLabs, came through the non-Asba route.
“The last three IPOs saw one million retail applications. That universe will now shrink to 700,000-800,000. Retail investors who apply by filing physical IPO forms will face issues. Either their bank branch may not offer Asba facility or the staff may not be equipped to handle the new system,” said an investment banker handling IPO distribution, on condition of anonymity as he is not authorised to speak to the media.
Sebi had said last week that there were 62 banks that could process Asba applications. Industry players say not all of these banks or their branches may be equipped to handle IPO application forms, which could create problems for investors.
Sumit Jalan, head of equity capital markets (India), Credit Suisse, said there could be some impact in participation on investors coming from Tier-2 and Tier-3 cities.
In developed markets such as the US, companies are able to list within days of IPOs.
Industry players say the next few issues will be watched and Sebi might then tweak the system, if required.
“We have been in constant dialogue with Sebi and have been providing them with feedback. This will be an ongoing process where the regulator might make some changes to the system if needed,” said S Venkatraghavan, managing director, IDFC Securities. He added a big IPO with 35 per cent reservations for retail might face difficulties till certain issues in the new system are ironed out.
Some players believe the real test of the new system will be a big issue such as L&T Infotech, which is planning to mop up Rs 1,000 crore. Precision and TeamLease are both raising around Rs 500 crore each.
Mridul Mehta, executive vice-president, ICICI Securities, said they had taken steps to reach out to investors in small centres. “We have taken additional measures like appointing more syndicate members. We have gone to 20 cities to help investors with Asba so that retail participation is enhanced.”
Sources in Sebi said mandatory Asba was essential in bringing down the IPO timeline from 13 days to six days. “There might be hiccups in the short term, but we are hopeful that everyone will get used to the new system. We are in talks with the Reserve Bank of India and also the bankers to explore further streamlining of the process,” said a Sebi official.
