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Confident of a revival in the initial public offering market (IPO), Securities and Exchange Board of India chairman U K Sinha said companies and their merchant bankers had become much more responsible with pricing and a strong pipeline was building up for public offers.
In the past, a number of companies were found to have indulged in manipulative activities after post-IPO listing of shares, while many of the companies and their merchant bankers were doing "all sorts of pricing" to extract maximum possible price from the gullible public investors, Sinha said.
"If you look back at things 2-3 years ago, almost two-third of IPOs were trading below the issue price (at which public investors were sold shares in the IPO). We decided to make our scrutiny process much more stringent," the Sebi chief told PTI in an interview.
"People had done all sorts of pricing, but Sebi is now asking a lot of questions on pricing. We have also put a lot of restrictions and obligations on the merchant bankers. We have begun asking them to disclose their track record.
"We have also told the bankers that they must preserve what due diligence they have done on the issuer company. That due diligence needs to be kept available for Sebi inspectors to go and inspect for a period of three years," Sinha said.
The Securities and Exchange Board of India (Sebi) chairman said that all these 'checks and balances' have made the merchant bankers much more alert and now they have also started asking a lot of questions from the companies.
"Combined with these efforts, the opening day call auction to check listing-day volatility has really helped. In the process, we have managed to contain the IPO market manipulation very substantially," Sinha said.
Asked about the impact of these measures, Sinha said, "Pricing is much better now. Because of our questions, merchant bankers are also becoming much more responsible."
On whether he sees a revival in the primary markets, Sinha said the IPO market is certainly picking up and a strong pipeline is there for the public offers.
The revival will also help in raising funds through markets for capital requirements for the infrastructure building and other areas in the country, he said.
"My guess is there will be a revival soon in the primary market. The DRHPs are getting filed more and more and the pipeline of IPOs is improving and building up," Sinha added.
After a long lull, there has been a significant pick up in the IPO market in recent months, although most of the issues are relatively smaller.
As per the industry data, more than 30 companies have lined up plans to raise funds totalling over Rs 20,000 crore through public offers. These include InterGlobe Aviation Ltd, which runs the country's biggest airline by market share under 'IndiGo' brand, Coffee Day Enterprises and Matrix Cellular.
At least 21 of these firms have already got the go-ahead from market regulator Sebi to launch their respective IPOs.
The uptick also comes at a time when Sebi has announced a slew of fresh reforms in the IPO space, including halving of the listing period to six days.
So far this year, eight companies have collectively raised nearly 4,000 crore through IPOs. In comparison, a total of six IPOs had hit the market in the entire 2014 and together garnered just Rs 1,528 crore.
