Mandatory IPO grading to continue: Sebi

Mandatory IPO grading to continue: Sebi

New Delhi: Market regulator Sebi has decided to continue with the mandatory grading of initial public offers (IPO), amid doubts on the relevance of the present system as the gradings do not reflect in the performance of these issues in the markets.

“In the absence of sufficient experience to vouch for the current system of mandatory grading or to counter it, the Sebi Board earlier this month decided to maintain the status quo," a source close to the development said.

“We have decided to maintain a status quo — that is to continue to have a mandatory grading for IPOs," the source said.

“The decision was taken as members of the Primary Market Advisory Committee (PMAC) felt that it is too early to come to a conclusion on the effectiveness of the present policy of mandatory IPO grading," the source added.

However, many analysts believe that mandatory grading requires amendment since grading does not reflect in the performance of issues in the market.

“The present system of grading requires to be amended. Even the performance of nine IPOs that were given four grades out of five (highest) is worse than those graded at three points," said Jagannadham Thunuguntla, equity head of Nexgen Capitals.

“The market regulator should change the grading system suitably to help small investors take suitable decisions on investing in IPOs," he added.

Sebi had made grading mandatory for all IPOs where draft offer documents were to be filed with the regulator on or after 1 May, 2007, and made issuers responsible for the cost of grading.

Since then, about 100 IPOs have been graded by credit rating agencies. It was decided that the decision would be reviewed, based on the experience gained.