Moneycontrol Pro Panorama| SEBI's IPO pacifier

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The Indian primary market had its best year in 2021 with record fundraising and oversubscription numbers.

A total of 63 companies raised Rs 1.20 lakh crore from the public. 2021 will also be remembered as the year when start-ups moved from being held by a few private equity companies to widely-held public companies. Among the new-age companies that hit the market in 2021 were Paytm, Zomato, PB Fintech, Nykaa, CarTrade Tech, Fino Payments Bank, MapmyIndia, and Nazara Technologies.

Many records in the primary market were broken in 2021. For the first time, two companies saw oversubscriptions of 300 times. The highest ever subscription for an issue was seen in Latent View Analytics at 326.5 times, followed by Paras Defence and Space Technologies at 304.3 times. A total of 17 IPOs saw more than 100 times subscriptions.

It’s this frenzy that caught SEBI’s attention. SEBI has tried to control the madness in the primary market on two fronts.

One is by making companies tapping the market become more transparent on their use of funds and tightening norms for anchor and private equity investors.

On the second front, SEBI has attacked the source of euphoria. Most IPOs saw very high bidding in the non-institutional investor (NII) segment, thanks to a product offered by lenders called IPO Funding. Within this segment, the smaller investors – those subscribing between Rs 2 lakh and Rs 10 lakh were at the receiving end as they never got an allotment of shares. SEBI has reserved a third of the portion for bids in this segment.

Allotment will now be on draw of lots, the same as the retail segment, in order to allot minimum application size for applicants in case of oversubscription. The balance allotment will be done on a proportionate basis. This move by SEBI has shrunk the NII segment and will have an impact on future IPOs.

Along with this action by SEBI, IPO markets will be hit by RBI’s restrictions on IPO funding by NBFCs. RBI has restricted them from lending more than Rs 1 crore to IPO investors from April 1st, 2022.

The moves by authorities are important and necessary to bring some sanity to the IPO market. However, these have been announced just before big and important issues such as the ones being planned by LIC and NSE.

Given the size of LIC’s issue, the government would need the backing of IPO funding to see the issue sail through comfortably, in which case it will have to float the issue before RBI’s deadline of April 1. 

Investing insights from our research team:

GAIL India: Well placed to benefit from multiple tailwinds

Sharda Cropchem Ltd: Healthy earnings outlook; attractive valuations

What else are we reading?

Jet’s revival remains a non-starter as the New Year begins, but there is a silver lining

Start-Up Street: The nature and composition of the Indian economy is changing rapidly, throwing up new investment opportunities

Why is the market ignoring Omicron

Digital revolution and COVID set to transform urban India

What demand for work under MGNREGA tells us about consumption demand

​Services sector rebound in Oct-Dec 2021 strongest since 2011, but third wave looms

Picks from our technical analysts: BEL, Welspun, Tata Power, Grasim​(These are published every trading day before markets open)

Also, check out MC30, our curated basket of 30 mutual fund schemes from the 1,660 available in the Indian market. This will help you build a solid mutual fund investments portfolio.

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Shishir Asthana

Moneycontrol Pro