Mumbai: Enthused by a renewed optimism among the corporate and individual investors in the capital market, SEBI Chief U K Sinha has said that complaints of manipulations in IPOs have dried up after the recent corrective steps.
"We are noticing that there is a renewed optimism about the economy and about the market. Corporates who were not making investments, my impression is that they have started looking at making investments once again," Sinha said.
"The IPO market has been very sluggish this year, but in the last four weeks we are noticing a renewed interest and this gives us an impression that people are optimistic and they are going to make investments," he said.
Asked about the various reform measures undertaken by the government and SEBI itself in past couple of months, Sinha told PTI in an interview here that all these initiatives have certainly helped boost the investor sentiment and the impact is quite visible.
Listing out various steps taken for giving a boost to the IPO (initial public offer) market without compromising on the retail investors' interest, Sinha said that measures have been put in place to check issues like over-pricing of shares and listing day manipulation, and to ensure confirmed allotment to small investors.
Sinha said all these measures have helped develop the market, while safeguarding the investors' interest.
About the call-auction system that has been put in place to check listing day price manipulation, Sinha said: "You will be happy to know that since we started this system about six months ago, there have been about five or six issues in the market then and in none of these issues we have received any complaint of manipulation.
"This is another step we have taken to safeguard the interest of retail investors," he said.
Talking about the steps taken by the government to boost investment, Sinha said: "So far as the public sector units are concerned, you are seeing that the government is creating National Investment Board and the idea is to accelerate the approval process and the investment process for the PSUs.
"Of course, the government policies have helped and the factors outside India have also helped, because this year, we have seen record volume of FII inflows. If you look at the market, I think that for the calendar year, starting January, our market has given more than 20 percent return, which is a very-very healthy return."
Sinha added: "So, the market has given a very good return and even the rupee is stabilising, the FII inflows are good and on the policy front also, positive developments are happening. So, may be all these factors combined together, have led to people looking to start making investments and coming to the primary market."
SEBI Chairman said the feedback from stock exchanges about secondary market trends has also been very encouraging.
"They (stock exchanges) also gave me a feedback that even on secondary market side, there is now some renewed interest from retail investors, which had come down.
"So, the retail trading has also started looking up. I would not say that they have picked up, but they have certainly started looking up," Sinha said.
About the primary market, Sinha said there used to be a worry that IPO pricing was too high and the investors were suffering because of that.
He said, "I will begin by saying that in equity market, in primary market, when anybody is investing, nobody is guaranteed a price, as that is the nature of the market.
"Keeping that in mind, what SEBI has done with a long term view is that merchant bankers will have to disclose their track record."
Explaining the rationale, Sinha said: "Imagine a situation when there are two merchant bankers, out of which one merchant banker has handled ten issues and nine or all ten of those issues are trading below the issue price, while in case of the second banker, three or four are trading below the issue price, but six or seven are trading above the issue price.
"Now, if you are the investor and the information reaches you about the two merchant bankers, you will find it very easy to take a call."
Sinha added, "He (investor) will know that here is one merchant banker who is in habit of over-pricing and not able to take care of the investor's interest and there the other who has done a honest job and in 50-60 or 70 percent cases, investor has managed to get a good return, so it becomes easy for the investor to make a choice."
Sinha said that it was not easy for SEBI to implement this measure, as there was "a huge resistance to make this disclosure mandatory, but we have done this".
He said there also used to be allegations of manipulation in the price on the opening day. "We had a system that on opening days, there were no bands, so prices could go up by 100-200 percent and then come back to 30 percent....
"Also, look at the dimension... We also had to honour the concept that there will be free pricing on the opening day. If we do not have a free pricing, then we are compromising with the IPO process and with the price and we cannot do that.
"So, we have, in a very ingenious way, combined the concept of free pricing and the control... (Now) we will have one hour call auction before the market (when) an equilibrium price would be determined on the basis of the price where maximum number of shares is traded and the price is matching.
"Earlier you could buy one share at 500 percent and that would become the price. Or you could sell at 20 percent and that would become the price," he said.
Sinha said, "This has been a very creative way of not compromising with the free pricing and also to ensure that people are not duped."
He said these are some far-reaching changes and would have tremendous impact once people start taking interest in the market.