Retail investors should be happier if U K Sinha, chairman, Securities and Exchange Board of India (Sebi), is able to implement a number of proposals he had made.
The timing of these is right. With the stock market hitting highs, there are expectations a number of companies will try to tap the market to take advantage of the boom.
It will also mean many small companies will come out with Initial Public Offerings (IPOs).
Says Arun Kejriwal of Kris Securities: “Sebi’s recent investor-friendly gestures should be seen in the light of its main mandate: Protect the retail investor. Given the situation in which they have been exiting the market very fast, Sebi realises if it does not act fast, there will be nobody to protect.”
In the past few years, retail investors have pressed the exit button with every rise in the benchmark indices. In April, the Wonderla Holidays’ IPO saw retail investors’ portion getting subscribed seven times, a rare thing.
Sinha’s proposals include tweaking IPO norms, increasing the quota for anchor investors, a quota for retail investors in offer for sale (OFS), seeking 25 per cent public float for public sector units and others. According to reports, there is even a modified proposal of a safety net to give retail investors confidence.
Says financial planner Rishi Nathany: “The quota in the OFS would work better for retail investors. If one looks at follow-on offerings and OFS, the latter is more efficient in costing and time taken. If the OFS process has retail quota, investors with broker accounts will directly apply and get shares.” The present system of downloading or taking a form and applying for an FPO is time-consuming.
Another broker said a quota will a make for a more level-playing field.
But while most measures will help retail investors, some believe the idea of a safety net may not be the best thing. According to reports, a new safety net mechanism is in the works in which a company will have to appoint a stabilising agent - a broker or an investment banker. The agent will have to support the secondary market price by transacting in shares through the open market for up to six months.
“The safety net will ensure the retail investor does not lose money for some time, but one wonders whether it will instil any kind of long-term confidence. The downside is once the broker or investment banker exits, there will be some volatility,” says a stock broker. The argument is once an investor buys equity, he/she becomes part-owner of the company. So, he/she enjoys the reward as well as risk.
Retail investors should feel good the regulator is providing them more opportunities. But while investing in direct equities, choose companies carefully.