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SEBI Chief Madhabi Puri Buch Vows to Address Overvalued IPOs

Introduction

Madhabi Puri Buch, the Chief of the Securities and Exchange Board of India (SEBI), has made a commitment to combat the issue of inflated valuations in Initial Public Offerings (IPOs). As numerous companies flood the market with their share sales, Buch recognizes the need to address this concern and ensure fair pricing.

Record-Breaking IPOs

Recently, several companies, including Tata Technologies, launched their IPOs, accumulating an unprecedented ₹2.6 lakh crore in application amounts. However, concerns have arisen regarding soaring premiums for certain IPO shares. Buch acknowledges these concerns, stating that the reasons provided for high premiums are often meaningless English words.

Speaking after SEBI’s board meeting, Buch affirms that a thorough investigation will be conducted to resolve this issue and ensure fair valuations.

Manipulation of IPO Pricing

It is important to note that some companies and their investment bankers manipulate IPO pricing by initially setting a low face value and then significantly elevating the issue price under the guise of a high premium. This practice raises concerns about fair pricing and investor protection.

Timing of IPO Releases

SEBI’s role is not to dictate the timing of IPO releases. Buch clarifies that market timing is left to the market itself, as mandating a specific time may not serve the best interests of both issuers and investors. She also reassures that the market has the capacity to handle such issuances, dismissing concerns about the system’s ability to manage the load.

Green-Shoe Option in IPOs

When asked about the possibility of allowing a green-shoe option in IPOs, Buch explains that it is practically feasible. However, conceptually, it presents challenges due to the nature of equity dilution involved in IPOs. Unlike other market instruments, an IPO involves equity issuance, and permitting a green-shoe option could lead to unwanted dilution and other implications.

Caution to Investors

In a recent event, Buch cautions retail traders against heavy betting in the derivatives market. She advises investors to focus on the long-term prospects offered by the equity markets instead. Buch recalls a study conducted by SEBI last year, revealing that nine out of ten investors lost money in the derivatives market. Trading on a short-term basis can lead to frequent losses for investors, and taking a long-term view can reduce the chances of investment calls going wrong.

Conclusion

SEBI, under the leadership of Chief Madhabi Puri Buch, is actively addressing the issue of overvalued IPOs. By committing to fair valuations, investigating manipulation, and cautioning investors, SEBI aims to protect investor interests and maintain the integrity of the Indian IPO market.

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