The past couple of years have seen several SEBI (Securities and Exchange Board of India) initiatives that were ostensibly for the retail investors’ benefit, but have come a cropper. The first few years of the coming decade will, hopefully, see a rollback of some of these measures or some mitigating action. There are many examples. The ASBA (application supported blocked amount) scheme that allows retail investors’ money to remain in their bank accounts until IPO shares are allotted hasn’t worked and, at the end of 2009, SEBI was still tinkering to get it going.
SEBI scrapped entry loads charged by mutual funds without putting in place an alternative. This was followed by the hurried creation of a platform to trade mutual funds through stock exchanges. It has failed to attract investors, since the process is cumbersome and the fact is that investors need advice but don’t want to pay for it at the retail level.
Another move to help the price-discovery process in IPOs was the concept of anchor investors. But these anchors weren’t able to persuade companies to keep valuations realistic, while retail investors remained unimpressed with the pricing. The result: four out of five IPOs that had anchor investors saw them losing money on listing. Worse, they were stuck with the shares for 30 days. Apparently, retail investors who decide to stay away from IPOs are smarter than the big institutional investors who stepped forward to anchor them.