IPOs and Merchant Bankers

SEBI chairman Mr. C.B. Bhave is a man on a mission. Especially, when it comes to protecting the rights of investors. And in his latest move, he has slammed investment bankers for robbing investors. This is for pricing initial public offers (IPOs) at astronomical valuations. More so, when the anguish of investors will deepen, in case there is a correction in the stockmarkets.

There have been a slew of IPOs that have hit the markets in the past one week. All of these are looking to capitalise on the buoyancy prevalent in the markets that have crossed the 20,000 mark for the first time since January 2008. Many of the promoters are looking to garner the best possible price for their stakes.

And this has caught the ire of Mr. Bhave. This is what he has to say, "In a bid to maximise returns for promoters, they (investment bankers) are not looking at the interests of investors. You need to introspect whether it is a healthy practice. If you keep investors disappointed day in and day out, the cause of investors will only be a lip service."

We could not have agreed with him more. Investors should not fall for the gimmick that a rise in the number of IPOs means that stockmarkets are going to rise further. It is in times such as these, that investors will have to keep a cool head and not get carried away with all the noise. Valuations of not just IPOs but all stocks will have to be given a good, hard look. Only if they are available at attractive prices, should an investor then choose to put his money in them. This is of course, when all other parameters such as strong financials and good management also pass the test.

I would suggest that a rating system should be started with Merchant Bankers.
Since the price of an IPO is discovered in consultation with Merchant Bankers, they should be penalised if an issue flops.
Further with each issue where they participate, there past records of IPOs which they supported should be published. It is only then that they will be careful in supporting dud issues