Views mixed on hike in cap for small investors

There is mixed reaction from merchant bankers to the proposal by the Securities and Exchange Board of India (Sebi) to hike the investment ceiling of retail investors to Rs 2 lakh from Rs 1 lakh now in public offering of stocks.

Jagannadham Thunuguntla, equity head of SMC Capitals, feels raising the cap was long overdue considering that the market size has grown and fund raising needs have spiked in tandem compared to five years ago.

“ The subdued response from retail investors to several public offerings recently also might have prompted the regulator to think of this amendment,” he added.

Sebi has proposed to amend Sebi ( Issue of Capital and Disclosure Requirements) Regulations, 2009 ( ICDR Regulations) to enhance the limit prescribed for defining a retail individual investor ( RII) in a public issue from the existing Rs 1 lakh to Rs 2 lakh, in a paper issued for comments.

The regulator cited three reasons for the move, including that the present ceiling was limiting the retail investors who have the capacity to invest over Rs 1 lakh in public offerings. If they were to apply for shares worth over Rs 1 lakh now they would be competing for allotment within the high net worth individuals ( HNI) category of investors, which has an limited allocation of 15 per cent against 35 per cent for retail investors.

In recent public offerings, roughly 75 per cent of RII applications have been in the size of Rs 80,000- 1 lakh even as in the HNI category, the number of applications of under- Rs 5 lakh is negligible.

Sebi also felt that big offerings of Rs 4,000- 6,000 crore need to receive 15- 20 lakh applications from retail investors to cover the 35 per cent portion reserved for them. “ This could be a daunting task considering that in case of well oversubscribed issues, the number of applications received from RIIs was in the range of 35,000 to 70,000,” Sebi added.

Inflation in India has risen from about four per cent in 2005 to about 12 per cent lately. During the same period, the BSE Sensex has risen from about 8,000 points to about 18,000 points.

“ This means that the RIIs now buy a lesser number of securities with Rs 1 lakh than they would buy with the same amount in 2005,” the regulator explained.

Shailendra Jindal, CEO of Continental Capital Advisors felt that Sebi should have raised the reservation for retail investors from 35 per cent now to maybe 50 per cent.


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