Madhabi Puri Buch, the chairwoman of the Securities and Exchange Board of India (Sebi), announced on Friday that the agency is looking into three examples of purported exaggeration in the number of initial public offers (IPO) subscriptions.
At an Association of Investment Bankers of India conclave, the head of Sebi announced that the regulator will take action shortly against IPO malpractices such mule accounts and inflated subscription figures. Market participants use mule accounts, or accounts belonging to family members. Certain applications are submitted in a way that increases the likelihood of rejection, according to Buch. Before tightening rules to discourage such malpractices, she said the regulator is waiting for further data.
While addressing the media outside the event, Buch brought up the Roopal Panchal case, which involved certain operators manipulating initial public offerings (IPOs) by filing several benami applications in the early 2000s. The regulator subsequently gave key players in the scam instructions to disgorge their unlawful earnings.
Additionally, according to Buch, 43% of retail investors and 68% of non-institutional investors (HNIs) reverse their trades during the first week following an IPO listing. “The IPO market is a market for traders more than investors, and that is something we have to acknowledge,” the speaker stated.
Sebi expresses concerns about inflated IPO subscription figures.
Over the course of a month, the percentage was at 52% for retail investors and 76% for NIIs. “IPOs’ price discovery process isn’t ideal. What is the motivation for your desire to incur this risk if, as an investor, you intend to retain for a reasonable duration? Hold off until the price stabilizes—you might even want to wait until the first round of quarterly results. A retail investor is not in a rush and incurs no impact costs, according to her.
“We’re also observing instances where certain merchant bankers exhibit a pattern of behavior—repeatedly appearing names in these kinds of malpractices. Buch stated that as a result, we will have to evaluate the policy and (begin) enforcement actions in the best interests of the investors..
Buch also emphasized automation’s significance, predicting that in the near future, automation will account for 80% of the labor completed on a draft IPO paper. Of the 58 initial public offerings (IPOs) in the previous year, 40 saw subscriptions of ten times, while sixteen saw subscriptions exceeding fifty times. It is unknown how much was gained as a result of these unethical acts, given the majority of these oversubscriptions were for obscure companies.
