Companies will now find it difficult to mislead retail investors by showing oversubscription figures of Initial Public Offering (IPO) on the first day. The capital market regulator Securities and Exchange Board of India (SEBI) on Thursday stated that withdrawal or lowering the size of bids will not be permitted for non-retail investors at any stage.
"Earlier a lot of issues used to get oversubscribed in the very first minute because of large number of bids from institutional investors and on the last day they would revise their bids downwards," said Prithvi Haldea, chairman and MD, Prime Database. "It gave wrong message to the retail investors about the subscription."
SEBI had taken steps in the past to check this practice. It had imposed 10% margin on bidding which was later increased to 25% and then to 100%. The regulator had also said that one cannot withdraw an issue but allowed revision in bids. But revision clause was misused as the large bids would come on the first day, and on the last day the bid would get revised downward.
"SEBI has made it clear now that non-retail investors cannot lower the size of bids which will check this practice," said Jagannadham Thunuguntla, strategist and head of research, SMC Global Securities.
Experts feel that from now onwards the retail investors will get true picture. "Retail investors will now be able to get true picture of the subscription because institutional investors will not have option to revise the bids downwards," said Haldea.