Sebi goes easy on IPO pricing

In May 2013, when online local listings agency Just Dial had an Initial Public Offering (IPO), it was forced by the Securities and Exchange Board of India (Sebi) to offer a discount and ‘safety net’ to retail investors.
The stock markets regulator felt the valuations sought by Just Dial, one of the very few new-age information technology companies to tap the stock domestic market, were on the higher side for a company which hadn’t turned profitable.
Just Dial’s Rs 900-crore IPO was subscribed 10 times what was on offer and its stock saw significant gain on listing. The safety net option, where the issuer has to compensate investors if the stock falls below the IPO price, was never triggered. Come October 2015 and Coffee Day Enterprises, the company that operates the Café Coffee Day chain of restaurants, and InterGlobe Aviation, the company that owns IndiGo, the country’s most profitable airline, didn’t face any such pressure from the regulator in pricing their offers. Neither issue had a sop for small investors such as a discount to the issue price.
Experts believe both the Coffee Day Enterprises and InterGlobe IPOs were priced aggressively as bankers had investment commitments from institutional investors. The retail portion in both saw barely full subscription, as investors saw little gains on listing.
“Fair pricing of IPOs is critical, so that investors are incentivised to invest in IPOs. However, IPOs cannot be always so priced that investors make a quick buck and exit on the listing day.”