Share The Pie

The SEBI's move to end discretionary quotas for QIBS, and allot shares to all investors on a proportionate basis, may also end another malpractice in the IPO game. Several promoters and merchant bankers earlier ensured that certain FIIs got more shares than others, a cosy relationship which shut out other investors from making a killing on the exchange. The fact was that many of these favoured FIIs would sell the shares immediately after listing—and normally the listed price was higher than the issue price—and book huge profits. Although evidence of such favours isn't easily available, one indicator is that a study (of 24 public issues) stated that 95 per cent of the high net worth individuals sold their shares within seven days of the listing of the scrips.

The new norms provide a shot in the arm to retail investors by boosting allotment for MFs, providing them with a five per cent allocation within the QIB quota. "This will allow small investors to participate in the wealth creation process through the safest route, so we do see more of them coming in now," says Sandesh Kirkire, CEO, Kotak Mahindra Mutual Fund.

Kirit Somaiyya of the Investors Grievance Forum and other activists point to the tensions between domestic and foreign institutions over the earlier discretionary allotment. They contend that domestic institutions, such as MFs, banks and NBFCS, had regularly complained that they were at the losing end of the preferential allotment given to FIIs by lead managers, merchant bankers and promoters.

In another move aimed at transparency and parity, SEBI wants listed companies to ensure that at least 25 per cent of share capital is held by the public over the next two years. This rule will exclude public sector and unprofitable companies, besides firms who have been given an exemption by SEBI. This has brought the spotlight on Wipro and Jet, which currently have only 13 per cent and 20 per cent public float. "This brings some clarity but there are still inconsistencies that will need to be clarified by changes in the dip guidelines, takeover code, section on contract rules and delisting guidelines, all of which now specify different thresholds. So I would say the devil is in the details," says Somasekhar Sundaresan, a securities lawyer.

While there is agreement that these moves will encourage retail investors, what is unclear is the impact it'll have on the primary market. "I don't see this having a massive impact on the market," says Andrew Holland, senior vice-president, DSP Merrill Lynch. "This a positive step, but it has come too late, so the retail investors have lost out to some extent in the wealth creation," says Virendra Jain of the Midas Touch Investors Association.

At the same time, others like Somaiyya think SEBI needs to do more on this front. "It's a step in the right direction but it's not enough," he adds. For, there are several issues yet to be tackled by the market regulator. One of them is vested interest groups driving up share prices in the run-up to an IPO. A study found that prices of several companies went up by 30-40 per cent a few months before their IPOs. For instance, the Punjab National Bank scrip zoomed from Rs 361 in January '05 to Rs 500 when the issue opened in March, only to come down to Rs 349 within a couple ofmonths. Is the SEBI chairman listening?