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Reforms keep Primary markets on their toes

Published on Friday, July 29, 2022 by Dilip Davda

Reforms keep Primary markets on their toes

Well, we are witnessing dry spell as far as mainboard IPOs are concern since June 2022. While this slowdown is attributed to revised norms of funding for HNIs for IPOs on one hand and the change in HNI categories for below Rs. 10 lakh and above Rs. 10 lakh on the other hand. It is also coupled with revised norms for Anchor investors holding norms for IPO allotted shares. According to primary market sources, no merchant banker now dares to come with mainboard IPO. 

In fact, after seeing the fate of recently listed IPOs like Zomato, PayTM, LIC where retail masses lost heavily, primary market operators and investors are mulling reinstatement of "SAFETY NET" which was introduced and soon withdrawn by SEBI. When SEBI is not doing anything on war footing for pricing policy of mainboard IPOs even after indicating their intervention from time to time.

Well on SME front, while we are witnessing IPOs coming, surprisingly, at present we find SME IPOs from lead manager Finshore Management Services Ltd. that has average track record. But as we all know, SME IPOs are always a structured issue with a market making aspect. And despite such norms and the higher entry level, many IPOs have fared badly in initial face and then moved in tandem with operations from vested interests.

According to Primary market sources, in many recent SME IPOs, the subscription tally that was at the close of IPO vastly differs at the time of allotment, wherein we find high anomaly on non-banked IPOs and no re-submission of technically rejected applications. What is more, market making operations by the Lead Manager itself or their group companies always leave a wide grey area open for market operations post listing. SEBI should plug this loophole at the earliest, opines primary market operators.

Anomalies in response data has been the ongoing issue which has exaggerated in recent times. If we take the data of Calendar Year 2022 alone, we find vast anomaly in SME IPOs of Alkosign, Safa Systems, Shigan Quantum, Cool Caps, K N Agri, Swaraj Suiting, Achyut Healthcare, Dhyaani Tiles, Fone4 Commu., Le Merite, GlobeSecure, Fidel Soft, KCK Ind., Sailani Tours. If SME IPO investors take a close look on the announcement of subscription at the close of IPO and the final data at the time of basis of allotment, they will find the mockery done.

Though it's an open secret that SME IPOs are brought to markets only when Lead Manager/Market Maker/Promoters are ready with at least little over one time subscriptions in their hand. When these arrangements are done by promoters, issue expenses remains normal, but when it is arranged by Lead Manager or Market Maker, then the issue expenses increased many fold. In case of oversubscription, dummy applications submitted by vested interests stands withdrawn under the pretext of non-banked applications or technically rejected ones.

Finshore Management has a matter of withdrawal of Alumilite Architecturals IPO which was closed (in June 2018) with 1.08 times subscription found just around 70% subscription at the time of allotment as wide rejections which were not banked after corrections. This invited tussle between Lead Manager, Market Maker and Promoters and the Basis of allotment was getting delayed. However, the issue was finally scrapped at the behest of NSE SME person's intervention.

With many cases of non-banked applications tally that gave wrong impression of oversubscriptions has irked one and all. Perhaps due to this, now SEBI has issued guidelines for IPO applications inclusion in subscription response tally only after they are banked, to give more transparent data of subscription. This norm is now applicable for all IPOs i.e. mainboard as well as SME.

According to Primary market operators, we have two exchanges that are having SME platforms i.e. BSE SME and NSE SME Emerge. However, both these exchanges have different norms and regulations and among them, NSE has somewhat stringent norms. Due to this, we witnessed few IPOs in the past originally targeting NSE SME listings have settled finally with BSE SME listings. The most controversial IPO under this tag is that of Deccan Healthcare Ltd.

In light of this, primary market operators are suggesting that its high time for SEBI to take reins in their hands for vetting offer documents for BSE or NSE SME listings.

Now that SEBI is mulling more reforms to improve the sentiment for primary markets and protect small investors, they should consider all the changes envisaged by primary market operators and also the investors at large. Let us hope that SEBI takes up these issues at the earliest.

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About Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com


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