Dr. Sanjiv Agarwal
New investment in equity shares of companies which comes through primary market is almost nil for last few two years or so. As such while the investors are deprived from investing in primary market, corporate also loose the opportunity to tap the market through public offerings.
Securities and Exchange Board of India (SEBI), the market regulator, has last week taken several steps to revive the primary market, encourage retail investors to invest, revive mutual fund investments, introduce electronic initial public offerings (e-IPOs) and raise minimum investment size etc.
Under electronic IPOs, investors can tap broker terminal network by approaching a stock broker with share application in electronic or physical format who shall punch the application in the system. It is proposed that the issuer companies will compensate the brokers for use of net work. Moreover, they may also earn brokerage / commission on allotment of shares.
Investments by using ‘application supported by blocked amount’ (ASBA) will also be available in all core banking branches of the banks in future. This will enlarge the reach of ASBA in almost all parts of the country and thus facilitate investment in stock market from such pockets. This will also help in easier reconciliation, quicker refunds in the event of non-allotment and ensure hassle free investment without loosing interest on savings.
SEBI has also planned to provide incentive to issuers, brokers and banks for encouraging retail investors to use ASBA facility.
Further, subject to availability of shares, retail investors may get a minimum bid lot irrespective of the investment size. Thus, all retail investor will get allotment. Minimum application size will also go up from Rs. 5000-7000 to Rs. 10000- 15000. To allow more companies to tap market for second time, capitalization requirement for follow on IPOs will now be Rs. 3000 crores as compared to Rs. 5000 crore earlier. Retail investors will also benefit from the decision of allowing issue of right shares or bonus stares to non-promoter shares holders so as to comply with requirement of 25 percent public shareholding criteria. This will enable existing shareholders to share some growth of the company and will enable promoters to comply with our of the important conditions of being a listed company.
SEBI has also allowed a variation of 20 percent (earlier 10 percent) in the issue size from as declared in the prospectus. To encourage small & medium enterprises, institutional share has been enhanced from 50 to 75 percent.
To bring in discipline, SEBI has also decided to bring in investment advisors and financial planners under SEBI regulations. This will check entry of undesirable and unqualified players to advise the investors.
However, in case of mutual funds, Service Tax on such schemes will have to be borne by the unit holders and mutual fund investments will be more expensive. The steps taken will allow investors to invest in mutual funds without having a bank account. Also, cash will now be accepted upto Rs. 20000 by mutual funds.
All in all, SEBI’s new initiatives will certainly provide a booster to primary market in particular and money raising activities are bound to pick up. It needs to be seen, how fast the investors and issuers react to these initiatives.