NEW DELHI: Amid the ongoing euphoria in the IPO market, country’s capital market regulator Securities and Exchange Board of India (Sebi) has found a few merchant bankers indulging in inflating subscription numbers during the initial share sale process.
The regulator has promised action against them. “You apply in a manner that your application gets rejected. So you put in hundreds of applications with multiple banks knowing that your applications will get rejected. This is being done to inflate the number... We are observing these kinds of practices,” said Sebi Chairperson Madhabi Puri on Friday while speaking at the Annual International Business and Investment (AIBI) Conference in Mumbai. The chairperson added that Sebi also has data and evidence on “mule accounts”, wherein the credentials of an innocent person are used to typically front-run on stocks by those wanting to not leave a trace of trades.
“We are also seeing that there is some pattern of which merchant bankers tend to be, let us say, more frequent names occurring in such kind of malpractices. Therefore, in the interest of the investors, we will be required to both review policy as well as (start) enforcement actions,” Buch said. The Chairperson, without giving any names, said that they are probing three IPOs for possible malpractices like inflating subscription numbers.
Supported by ample liquidity and a positive momentum, the Indian market saw 172 small and medium-sized enterprises (SMEs) and 58 mainboard IPOs in 2023. A large number of these IPOs were subscribed over 100 times.
Buch also highlighted that the price discovery mechanism of IPOs is imperfect. Of the 58 IPOs last year, 40 received 10-times subscription, while 16 of them were oversubscribed by more than 50 times. Most of these oversubscriptions were for little-known companies, and the extent of gains made due to such malpractices is yet to be ascertained.
Despite repeated requests, she did not name the three investment bankers, saying, “I can’t say anything more. Mule account is certainly an issue. The Sebi chairperson admitted that the IPO pricing mechanism is imperfect, but ruled out doing anything on this.
‘IPOs price discovery mechanism imperfect’
Supported by ample liquidity and a positive momentum, the Indian market saw 172 small and medium-sized enterprises (SMEs) and 58 mainboard IPOs in 2023. A large number of these IPOs were subscribed over 100 times. Buch also highlighted that the price discovery mechanism of IPOs is imperfect. Of the 58 IPOs last year, 40 received 10-times subscription