Before the final assent
IPO and MF schemes dip in the negative zone as SEBI does not approve their worthiness
There was a time when approval of public issues or initial public offerings (IPOs) by the market regulator, Securities and Exchange Board of India (SEBI), were taken seriously by both equity share issuers and investors. More so when they came with a big premium tag. Companies were required to operate profitably for three consecutive years before its IPO to fix premium on the offer price of shares. That is history now. SEBI no longer seems to be concerned with IPO pricing, prospectus disclosures and risk factors. The ball is now almost entirely in the court of share issuers and investors. This explains why few are questioning SEBI for the poor performance of shares post their recent IPOs. Shares of 35 of the 60 companies that launched their IPOs since 2017 are currently trading below their IPO allotment price with over 20 of them losing more than 20 per cent. Investors and the market lost billions of rupees in the process. The BSE IPO index, a measure of newly-listed companies, fell 14 per cent during 2018 against a two per cent rise in the benchmark Sensex. The stock market is benefiting mostly large players, including foreign portfolio investors and big-time gamblers. Ordinary investors often get induced to enter the market for higher gains on their investment in the face of RBI's pro-business credit policies that force bank rates down for both creditors and depositors, overlooking almost a near-constant retail price inflation.
Similarly, false and misleading advertisements by mutual funds (MF) operators to mop up deposits from mostly ignorant investors — taking advantage of stock price flare-ups and low bank and other reliable company deposit rates — are costing poor small-time investors dearly. In the last one year, 54 out of a total 65 equity MF schemes have given negative returns. Only two schemes of a universe of 34 mid-cap and small-cap equity schemes have given positive returns over the last one year. Again, 22 out of a universe of 31 large-cap equity schemes have posted negative returns. This is pathetic for gullible ordinary investors, who do not seem to have any place to go to park their funds for a reasonable return in the absence of concerns for them from the government and market regulator. The ordinary investors are trapped between the two. According to reports, Sundaram Small Cap Fund, HSBC Small Cap Equity Fund and Aditya Birla Sun Life Small Cap Fund are among the worst-performing equity schemes over the past year, having lost up to 24 per cent. Several large-cap funds such as JM Core 11 Fund, IDBI India Top 100 Equity fund and DSP Top 100 were among large-cap laggards. In the mid-cap segment, schemes such as BNP Paribas Midcap Fund and SBI Magnum Midcap Fund have dipped by 18.45 per cent and 17.6 per cent, respectively, in the last one year, shows data from Value Research.
Barring a small percentage of the country's Central and State government pensioners, who get manageable post-retirement benefits from the government, the country's vast working population does not have many dependable avenues to park part of their earnings to protect their future. Of the country's total population of over 1.33 billion in 2017, only 21.5 million had Central government jobs. The number of Central government pensioners was around 5.2 million, some 46.5 per cent of them were defence employees and 26.5 per cent from the railways. These figures show how important are savings by ordinary individuals and investment avenues for the country's common man. Given the size of its economy, working population and the desperate attempt to save by ordinary citizens in the absence of reasonable social security for all, India's stock and debt markets could have been especially dovetailed to benefit both investors and companies. The stock and debt markets, it would appear, are being run more to benefit big speculators and corporate thugs.
Does SEBI approve the contents of an issue? It is a big question that does not provide a convincing response to ordinary investors. It is understood that submission of an offer document to SEBI should not be deemed or construed that the same has been cleared or approved by SEBI. The 'lead manager' certifies that the disclosures made in the offer document as generally adequate and in conformity with SEBI guidelines for disclosures and investor protection, for the time being. The ball is in the court of investors to take an informed decision on making an investment in the proposed issue. Thus, the capitalist system operates in its worst form in a democratic country where for more than 80 per cent of its people, its a struggle for existence.
There is no serious attempt by the government and the market regulator to ensure that these public issues do not soon become a matter of major public concern. Any company making a public issue or a listed company making a rights issue of more than Rs 50 lakhs is required to file a draft offer document with SEBI for its observations. The company can proceed further on the issue after getting observations from SEBI. Should SEBI make public its 'observations' in big bold letters — maybe at the cost of the company — for the benefit of small and ordinary investors? Few ordinary investors actually know the real value of the offers. Debts or credits are rated, but there is no equity rating agency. This makes market regulator's job very critical for equity investors in an economy such as India. Of late, the ministry of corporate affairs became the latest government department after the income tax to question the premium paid by investors in startups after issuing notices to more than 2,000 startups that have raised money since 2013. The ministry is believed to have questioned the valuations at which these startups raised money and is focusing on companies whose valuations have fallen after the first round of fundraising.
(The views expressed are strictly personal)