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Going for more shrs in IPO to up allotment distorts prices, says SEBI

Informist, Friday, Dec 8, 2023


NEW DELHI – The Securities and Exchange Board of India is wary of deceptively high demand in initial public offerings leading to inflated pricing, Chairperson Madhabi Puri Buch said today at the Global Economic Policy Forum organised by the Confederation of Indian Industry.


Buch was addressing concerns over the recurring trend of high oversubscriptions tempting investors to apply for more number of shares in IPOs than they actually want in order to improve their allotment chances. “If you wanted 100 shares only but applied for 2,000 shares” due to a market expectation of 20 times oversubscription then it results in “unnatural price discovery.”


The price at which a company or a selling shareholder offer shares in an IPO should be determined by true demand-supply dynamics. If demand is expected to be high, then companies may opt for higher pricing of their IPOs and vice-versa.


SEBI has been very careful in avoiding 100% pro-rata allotment mechanism which could cause inflated demand, she said. The current mechanism provides for a minimum number of shares to be allotted to a successful applicant. This, however, leads to a higher number of rejections among the IPO applicants.


Buch advised retail investors to avoid leverage in their IPO applications. “There is enough liquidity in the secondary market and if you have a long-term investment objective then you can buy the shares later,” she said. There is no need for retail and other individual investors to chase more shares in IPOs.  End


Reported by Rajesh Gajra

Edited by Ashish Shirke


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Source: Cogencis

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