Madhabi Puri Buch, the chairperson of the Securities and Exchange Board of India (SEBI), has issued a prudent advisory to retail investors, urging them to exercise caution before rushing into Initial Public Offerings (IPOs). Emphasizing the imperfections in the IPO price discovery mechanism, Buch suggested that long-term investors should wait for prices to stabilize before making investment decisions.
Imperfections in IPO Price Discovery
Buch, speaking at the AIBI Annual Convention 2023-24 on January 19, highlighted the inherent imperfections in the price discovery mechanism of IPOs. She acknowledged that IPO pricing involves judgments from various market players and is subject to volatility. As a result, retail investors are advised to adopt a patient approach until there is more stability in price discovery.
SEBI’s Efforts to Tackle Malpractices
Expressing concern over malpractices in the IPO process, Buch specifically mentioned issues such as:
- Mule Accounts: Illicit practices involving the use of multiple accounts for manipulative purposes.
- Inflating IPO Application Numbers: Creating a false impression of high subscription.
- Strategic Application Rejections: Applying in a manner that leads to intentional rejection of the application.
SEBI is actively working to address these malpractices, Buch assured.
Mixed Performance in Recent Listings
Buch acknowledged the mixed performance of IPO listings in recent years. The chairperson emphasized the dynamic nature of IPO pricing and the uncertainty surrounding its outcome. Retail investors, particularly those with a long-term investment horizon, are encouraged to exercise patience until a more stable price discovery is achieved.
No Hurry for Retail Investors
Buch made a clear distinction between retail investors and traders who engage in quick flips within the initial weeks of an IPO. For retail investors, she stressed that there is no rush, and they are not subjected to immediate impact costs. This advice aligns with SEBI’s commitment to ensuring a fair and transparent market for all participants.
As SEBI continues its efforts to enhance the integrity of the IPO process, retail investors are advised to stay informed and exercise prudence in navigating the dynamic landscape of initial public offerings.
