Retail investors will now get to subscribe more in initial public offers (IPOs). The Securities and Exchange Board of India (Sebi) has proposed to raise the investment limit for retail investors from the current Rs1 lakh to Rs2 lakh.
The move is seen as an intermediate step before increasing the limit to Rs5 lakh and is expected to help companies obtain more retail subscriptions in IPOs. Currently, individual investors are classified as retail only if their investment is Rs1 lakh or less.
Some 35% of the amount to be raised by IPOs is reserved for retail investors, but due to the low investment limit, very often they are undersubscribed.
“The limit of Rs2 lakh will increase the chances of retail investors getting allocations even in case of oversubscription,” says MV Ramnarayan, director, Link Intime India, a share registry firm.
“Some of the forthcoming issues from government companies would be pretty large. To fill up subscriptions, they would have had to rope in more investors if the retail limit was restricted to Rs1 lakh,” adds B Narasimhan, vice-president at Karvy Computershare. Public sector companies have lined up Rs40,000 crore worth of IPOs.
According to a source, the regulator has sounded out market intermediaries raising the retail limit even further to Rs5 lakh.
“Maybe the regulator is looking to increase the limit step by step,” said the source.
According to a discussion paper released by Sebi, large-sized public issues easily require between 1.5-2 lakh applications to meet their retail quota. This is much higher than the 35-70,000 applications received from retail investors in recent issues. Sebi has invited comments on the discussion paper till September 3.
Sebi has also noted that in recent public offerings, approximately 75% of applications in the retail category have come in the size of Rs80,000-Rs1 lakh. The number of applications in the non-institutional category, which is used by high net worth individuals, is usually above Rs5 lakh, but retail investors avoid investing in this segment since the reservation of shares is only 15% against 35% for retail.
According to the regulator, the proposed increase in the investment limit is intended to keep pace with inflation and also the changing nature of market valuations. While inflation is close to double-digits, the market has risen over 125% since 2005. Rs1 lakh does not fetch the retail investor too many shares, given the bloat in share valuations.
Comments