India’s market regulator said there is a need to protect small individual investors in the initial public offerings of unprofitable companies even as the nation’s consumer internet firms ride the record IPO boom driven by a retail frenzy.
"Perhaps, more explanation on the basis of pricing in the document is a good idea, especially for the new tech companies," Ajay Tyagi, chairman of the Securities and Exchange Board of India, said at the tenth annual summit of the Association of Investment Bankers of India.
It warrants some more documentation on the valuation, especially with regards to educating the investors on the new tech companies, he said. "It is in the interest of all stakeholders to explain why the pricing is done this way."
The number of applications from retail investors in IPOs totalled 5.41 crore so far this fiscal against 3.81 crore in FY21, Tyagi said. The average number of retail applications stand at 15.65 lakh as of November.
Retail investors kept the rally going this year and piled into IPOs, after riding an unprecedented rebound from the pandemic-lows of March 2020. Net investment by the retail segment in the cash market jumped 68% over a year earlier to Rs 86,000 crore as of October in 2021, according to the National Stock Exchange data. By comparison, foreign portfolio investors withdrew money and domestic institutions were far more cautious.
Tyagi reiterated the need for monitoring how money raised through IPOs is used. The monitoring is “weak and we plan to address that through the outcome of the consultation paper”, he said, citing SEBI’s suggestions to tighten capital disclosure norms.
That suggested a longer lock-in period for anchor investors. “Will take a view soon on that.”
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