A series of initial public offerings (IPOs) by companies after a period of lull over the past one year in the primary market may provide sufficient room for the Securities and Exchange Board of India (SEBI) to take a call on whether or not to continue with its IPO grading process, which has faced questions and criticism.
“After we get sufficient experience, the primary market advisory committee will again look at its need and then we will make up our mind whether to continue with this system or not,” said a senior SEBI official on condition of anonymity.
The primary market advisory committee has been given the mandate to review the grading, but it could not proceed to study
the matter in view of a slowdown in the primary market.
“The committee was of the view that the primary market activity had slowed down and there was not sufficient experience for the committee to reach a conclusion,” said the official.
IPO grading has been a subject of debate ever since SEBI made it mandatory in 2007. While many experts say it is not needed because it does not touch upon the critical price issue, others feel it is useful for small retail investors to use grading as a tool to understand the fundamentals of a company’s business.
In equity investment a good company at a wrong price is a bad investment. “Ignoring price in any case makes grading a futile exercise,” said Prithvi Haldea, managing director, Prime Database. “IPO grading, like independent directors, is an instrument of creating a false sense of security for the small investors.”