The IPO market has been buzzing in the developed and certain developing countries this year, with more and more companies coming to cash in on the revival in equity markets. But India has largely stayed away from the party.

Including the $1.8-billion Twitter IPO, which saw a frenzy among all kinds of investors, fundraising by the US Inc through public issues jumped to $50.7 billion so far in 2013.

According to Thomson Reuters, the number of IPOs by US companies increased 26 per cent this year compared with the corresponding period a year ago. The year has seen the strongest dollar volume for IPOs since 2000. Besides, with 189 new offerings so far, 2013 marks the strongest year for the number of new US listings since 2004, says Thompson Reuters.

But it was the UK that hogged the limelight as issuances this year in London quadrupled over last year.

The amount raised in Hong Kong through IPOs has been up around 280 per cent over last year, mainly because of the suspension of primary market activity in China.

Brazil saw seven IPOs, which raised $7.7 billion in the first nine months of 2013 against $2.1 billion last year. .

In contrast, the activity in Indian primary market is rather uninspiring.

According to NSE Website (excluding SME and offer-for-sale platforms), just three companies – Just Dial Ltd, Repco Home Finance Ltd and V-Mart Retail Ltd– have hit the markets to raise funds in 2013 through IPOs.

However, what is heartening from these issues was that all of them are ruling above the offer price. In contrast of the 10 companies that raised funds through public issues in 2012, only three are trading above the offer prices.

Lack of retail investors' participation forced even the Government to defer disinvestment of some public sector companies.

SEBI steps in

Market regulator SEBI is working very hard to attract retail investors, who moved to other asset classes such as fixed deposits, gold and real estate.

The first commendable step taken by SEBI was making the IPO window narrower. As against the earlier bidding period of over 10 days, the market regulator has brought down the time to a maximum of five days and asked the companies and exchanges to ensure listing within five days thereafter.

Besides, IPO investments have also been made simpler through the online route, and now, allotments/refunds are almost immediate.

SEBI has also introduced call auction for IPOs to manage risk effectively. Now, IPO stocks that raise funds above Rs 250 crore will have a 20 per cent circuit limit on the equilibrium price that would be arrived through the call auction mechanism. For IPOs below Rs 250 crore, shares have to be delivered compulsorily after each transaction during the first 10 days of trading.

Last year, SEBI came up with a ‘Safety Net’ proposal, which ensures return of money to small investors if the share price falls by more than 20 per cent from the issue price. The proposal, however, is yet to take off, as many in the investor community viewed such a provision is against the basic concept of equity investing.

The regulator is also looking at allowing companies to issue convertible debentures as an alternative route of raising money to revive the IPO market. Convertibles debentures, which ensure a steady inflow to retail investors in the form of interest, can be converted into equity after some time.

Lack of confidence

All these steps may be in the right direction, but the crucial factor that is affecting the market is lack of confidence. After Coal India Ltd’s IPO, the market has not seen a credible large issue, which is crucial for the growth of the market.

Multi Commodity Exchange of India Ltd (MCX), which drew a huge investor response – the IPO was subscribed by more than 54 times and attracted bids of about Rs 36,000 crore – is currently ruling at Rs 436 against the issue price of Rs 1,032. It had risen to Rs 1,617 post listing. But the recent National Spot Exchange Ltd (NSEL) payment crisis dragged the stock towards the current level. Both NSEL and MCX are promoted by Jignesh Shah-led Financial Technologies (India) Ltd.

So, good corporate governance plays a critical role in maintaining and enhancing investors’ confidence and interest. But that’s not SEBI’s job alone. The responsibilities equally lie with corporations, too. Will India Inc help in identifying the bad apples from good ones?

> badrinarayanan.ks@thehindu.co.in

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