India has had a stellar year in terms of investor response to major primary listings. Interest from retail investors in issues like Zomato, Nazara Technologies, Sona BLW, MTAR Technologies, Paras Defense, and Laxmi Organic has brought their current share prices to nearly double that of the issue price in many cases.
At a time when the market is gripped by the IPO fever, Securities and Exchange Board of India (SEBI) Chairman Ajay Tyagi said that the interest of investors must be protected during primary listings. In order to do so, companies should give a better rationale behind deciding the issue price and greater transparency from merchant bankers and issuers would be needed.
Tyagi added that perhaps the standards of due diligence adopted by merchant bankers be reviewed by the Association of Investment Bankers of India (AIBI).
“We do not want to dictate IPO valuations. But pricing is critical. Better explanation on the basis of which pricing is arrived at in the offer document may be a good practice, especially for new-age companies that are typically loss-making,” Tyagi said at an Association of Investment Bankers of India event.
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While new-age companies with non-traditional business models like Zomato and Nykaa saw significant listing premiums, Paytm’s disappointing listing highlighted that more clarity is needed for the high prices and valuations set by issuers.
“The growth in the primary market is accompanied by various challenges, including in the form of non-traditional business models of issuers, disclosure requirements for new-age technology companies and valuation-related apprehensions,” he said.
The share of participation by retail investors in the primary equity market has jumped by a wide margin in recent years. Only 7.7 million investors applied for IPOs during FY20, compared to 38 million in FY21. In FY22, there have been 54.3 million applications from retail investors up till the month of November, raising a total of Rs 15,100 crore.
During the first seven months of the current financial year, a total of 61 companies were listed publicly and collected a total of Rs 52,700 crore. During FY20-21, a total of 56 companies hit the primary market and managed to raise over Rs 31,000 crore, according to information from the Ministry of Finance.
(Edited by : Thomas Abraham)
First Published: Dec 23, 2021 2:49 PM IST
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