Given the paucity of regulatory initiatives in the recent past to revive the primary capital market, the slew of measures announced by SEBI recently would appear to be far-reaching in terms of their impact. There can be no two opinions about the desirability of these changes, which are avowedly focussed on the long-neglected retail investor. Yet, it would be premature to assert that there will be a dramatic revival of the new issues market. The record-breaking rise of the benchmark indices — the Sensex and the Nifty — have not so far revived investor interest in new issues. The causes are varied, and regulatory neglect may not be the most important reason. Investor apathy is more likely caused by the economic slowdown and falling levels of savings. Even in better times only a minuscule part of household savings was getting invested in equities. Another reason has been the disillusionment in the wake of various stock market shenanigans such as vanishing IPOs. A majority of their promoters have not been brought to book. All these reasons, however, do not obscure the fact that the primary market does need regulatory support in certain crucial aspects. In the first place, there is a long-felt need to increase the availability of quality stocks. Second, the case for building up a strong and active retail investor base cannot be overstated.
The latest SEBI moves are in that direction. The insistence on a 25 per cent public float for public sector undertakings, instead of the present norm of 10 per cent, is an important step that could have multiple benefits. There will be more PSU shares available in the market for all categories of investors. The PSU disinvestment programme will be moved along as many more well-run government undertakings offload their shares to meet the new SEBI norm, which incidentally also levels the field with private companies that already follow the 25 per cent norm. A reservation for retail investors in the Offer for Sale (OFS) route and the provision for a discount for them are welcome steps, but it should be pointed out that the OFS and the IPP (Institutional Placement Programme) were created to speed up large divestments of shares, bypassing the cumbersome procedures of retail investment. Therefore, even if many more companies can now take the OFS route, the value of this relaxation to small investors is questionable. Again, doubling the limit for anchor investors increases confidence-levels in individual issues and ought to be viewed as another step towards strengthening the primary market mechanism. SEBI is on the right track, but a genuine primary market revival may not happen in the short run. Such a revival can only ride on robust economic growth and consequent improved market sentiment.
