SEBI Chairman Calls for Greater Disclosure on Digital IPOs

On the side-lines of a FICCI conference, the SEBI chairman, Ajay Tyagi, underlined the need to protect the interests of small retail investors better in the case of new-age IPOs. Tyagi was obviously referring to the slew of digital IPOs that have hit the market this year with rich valuations, despite most of them being loss making entities.

The SEBI chairman has called for greater transparency and disclosure in the offer documents by the investment bankers in the case of such new age companies. Most investors are used to applying traditional P/E ratios and P/BV ratios to profit making companies. However, these metrics will not apply in the case of most digital IPOs that are loss making.

His concerns are not hard to understand. During the current calendar year, just 4 mega digital IPOs viz. Zomato, Nykaa, Paytm and Policybazaar have collected close to Rs.39,000 crore from the IPO market. Interestingly, 3 out of the 4 are making losses with little visibility of profits in the next 2 years. The only profit making company in the list is Nykaa where the profits are still quite marginal.

The SEBI chairman’s concerns perhaps stem from the fact that price movements have been quite volatile. For example, Paytm is still about 35% below its IPO price. While Nykaa and Zomato trade above the IPO price, they have seen unprecedented volatility in the last few days, which could very well intimidate the small and retail investors.

Tyagi has reiterated that he would not prefer SEBI to get into pricing niceties and they were best left to the investment bankers and the market forces. However, in the larger interests of the primary market integrity and protecting the interests of small investors, he feels that investment bankers must offer a much better and elaborate explanation and justification for the pricing of the IPO.

IPOs collected close to Rs.1.35 trillion in calendar 2021 and is expected to generate close to Rs.2 trillion in calendar 2022. Even if you set aside the mega LIC IPO that will hit the market in the coming year, there are a slew of digital IPO looking to raise big money. This includes names like Delhivery, PharmEasy, Swiggy, Snapdeal and, perhaps, even Byju’s and Flipkart.

Tyagi has called upon the Association of Investment Bankers of India (AIBI) to proactively do a review of the current standards of due diligence and valuations adopted by investment bankers. A good start would be to explain the price better. With over 9 crore registered investors on the BSE and over 7 crore demat accounts, the stakes are too high to be taking any chances.

Also Read:-

Upcoming IPOs in 2021

Upcoming IPOs in December 2021