Sebi ensured a level-playing field between small and institutional investors.
Retail investors in stock markets had reasons to cheer this year, especially due to the investing opportunities available in the form of initial public offerings (IPOs) and follow-on public offers (FPOs). Also, the Securities and Exchange Board of India (Sebi) introduced several measures to ensure a level-playing field between small and institutional investors in the primary market.
For one, retail investors can put a larger amount in IPOs. In October, Sebi doubled the investment limit from Rs 1-2 lakh. The retail entities stand to gain, as it will increase the probability of getting allotted a higher number of shares at a time when the retail portion is subscribed many times, while attracting more investors.
| REGULATION BENEFITS RETAIL INVESTORS |
| MEASURE: Retail investment limit in IPOs enhanced to Rs 2 lakh from the earlier Rs 1 lakh IMPACT: Retail investors can apply for more shares. Recent government offerings (MOIL, SCI, Punjab & Sind Bank) saw huge retail participation |
| MEASURE: Retail investors get an extra day for bidding in IPOs IMPACT: Investors get enough time to analyse the institutional demand and then make investment decisions. Moreover, the IPO bidding mechanism becomes more efficient as last hour rush of forms is reduced |
| MEASURE: Reduced IPO time frame to 12 days IMPACT: Money remains blocked in the bank account for lesser number of days |
| MEASURE: Mobile trading gets the go-ahead IMPACT: Investors can now place buy/sell orders while on the go. This move is expected to increase penetration levels |
In addition, retail investors (compared to institutions and high net-worth individuals) get more time to apply in IPOs. The IPO bidding window will be open for an extra day for them, after it is closed for other bidders. It implies that they can make investment decisions after factoring in the institutional demand.
And, the impact was immediately visible. MOIL, which was the first government-owned entity to hit the market after the new limits were notified, saw its retail portion subscribed more than 32 times. Similarly, the retail segment of Shipping Corporation of India’s IPO was subscribed more than six times. More recently, government-owned Punjab & Sind Bank saw retail quota being subscribed a massive 44.45 times. To put things in perspective, the much-hyped IPO of Coal India, launched before the rise in limit, had seen the retail segment subscribed only 2.28 times.
“Most Sebi initiatives were taken with the retail investor in focus,” says Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services. “These initiatives, while making the system more efficient, have provided investors many benefits. Investors gain from the money, which now remains blocked in the bank account till the time of allotment. The extra day (in IPO bidding) gives them ample time to make their investment decisions,” he adds.
Retail investors who prefer Asba (application supported by blocked amount) had yet another reason to smile. Their money will be blocked for a lesser time with the overall IPO time frame compressed to 12 days from the earlier 21 days. While Asba allows investors to earn bank interest on the blocked amount, the reduced time frame makes the money available quicker. And, with the Reserve Bank of India asking banks to pay a daily interest from April 1, it will increase the interest earnings for investors.
In an indirect move, the margin requirement for institutional investors while applying in an IPO was raised from 10-100 per cent. Retail investors will rejoice as the disparity between small and large investors have been done away with. A lower margin led to the creation of artificial demand, since the quantum of money to be paid up-front was only 10 per cent. “This would avoid inflated demand in public issues and provide a level-playing field to investors subscribing for securities,” according to Sebi.
Small investors who want to dabble in stocks, but don’t have an access to a computer or a broker throughout the day, can use mobile phones. Earlier, investors could only view their portfolio on cellphones, and not execute any trade.
On a different note, companies taking investors’ complaints lightly were taken to task by the market regulator. In December, more than 10 companies and their directors were barred from accessing the securities market for having failed to address the investors’ grievances. Retail investors will surely feel more empowered after this.
