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Market Watch: Go for it, Mr Chairman

The new SEBI chairman has a Mahendra Singh Dhoni quality about him writes Udayan Mukherjee.
Hindustan Times | By HT Correspondent
UPDATED ON MAR 06, 2008 09:30 PM IST

I like the look of the new SEBI chairman. He has a Mahendra Singh Dhoni quality about him. Quiet, composed, focussed and understated. None of the overarticulate, cocky, more-bark-than-bite bluster of his predecessor. In his first media interaction, the new chief made all the right noises and chose to focus on issues which need to be dealt with on a priority basis. Like tightening up the primary market.

He says he wants to kill the grey market for IPOs by collapsing the time gap between an issue opening and its subsequent listing, something that should have been done months ago. This will not only effectively kill the grey market but also come as a big help for people who buy IPOs to flip them on listing. Today flippers take on huge market risk for the few weeks it takes for a stock to get listed. As market conditions change, so does the expected listing price, a lesson well learnt from the Reliance Power debacle. Now, that risk will be cut to only a few days and punters, including institutions, will be even more emboldened to play for the pop on listing day, something that SEBI may not exactly desire. Yet, SEBI should hardly rethink this move for such considerations. It is one which makes the primary market more efficient and weeds out the illegal and dangerous grey market.

The other proposal is to make institutional investors put up 100 per cent of their application money upfront, from the current 10 per cent. Way to go. As some recent issues have adequately proved, most institutional investors are not the lofty “long term” investors they are made out to be. SEBI should be under no obligation to extend any easy leverage to institutional punters. Sadly, this will rob the market of the excitement of seeing an issue being oversubscribed hundreds of times. Too bad, we all know what a sham that was. The “billions of dollars” of seeming institutional appetite that would lead many a retail investor astray, would now be absent and the reason for buying an issue would have to be the strength of its business rather than these ephemeral carrots. These are bold steps, Mr Bhave, and you will hear a lot of dissuading opinion from investment bankers and issuers. Don't even spend a minute of your time thinking of them, you are about to do the right thing, go right ahead.

The next logical step should be to examine the role of certain participants in "bailing out" undersubscribed IPOs, the spurious allotments made to certain entities — which sometimes even include some foreign names, and the post-listing rigging of prices of some of the smaller issues. SEBI doesn't have to look very far, there are some glaring examples in the listings of the last three months. I know the regulator is toying with the idea of listing-day circuit filters but I doubt if that is the most elegant solution to this problem. My sense is that more targeted investigations and a desire to weed it out from the very roots is the way to go. Deepak Parekh, head of the primary market committee, is a very astute man, but the SEBI chief may do well to also talk to a few people who have their nose to the ground and know exactly how the system is abused. An accurate diagnosis of any problem is the most important step in treating it. Good luck, Mr Chairman, clean up the mess.

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