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India’s market regulator believes that it may be a “good idea" to ask companies, especially new-age technology firms, to provide more explanations in draft papers for public listings.

Ajay Tyagi, chairman of Securities and Exchange Board of India (Sebi), said that besides the emerging headwinds of the new variant of coronavirus and interest rate increases, ensuring that investor faith in the capital market remains robust is important for the current vibrant activity to continue.

“In that sense, this disclosure-based regime that we have, more and more transparency in that would further improve the trust and faith," Tyagi said at an event organized by the Association of Investment Bankers of India.

Several new-age technology companies such as Zomato, Nykaa, Paytm and Policybazaar went public this year with much fanfare.

However, the sharp fall in the share price of Paytm immediately post listing created a storm on social media on valuations that these companies, which are typically loss-making, were seeking in their initial public offerings.

“Pricing is a critical issue, and perhaps more explanation of the basis of pricing in the documents may be a good idea, especially for the new tech companies, which are typically loss-making companies and they have their own ecosystem, their own capital structure," said Tyagi.

“So, in terms of educating investors in terms of why they are being priced like that, some more documentation may be helpful in maintaining the trust," he added.

Tyagi said, however, that Sebi will refrain from making comments or giving directions on valuations to companies.

“We are not into the CCI (Competition Commission of India) area where the regulator would get into the valuation and that is also not the norm worldwide," he said.

“A better explanation of the basis of pricing would be in the interest of all stakeholders," he added.

Tyagi said a proper balancing act is required between the issuers’ aspirations and the investors’ interest and that merchant bankers need to engage with a wider set of potential investors while marketing IPOs.

The enthusiastic response shown by investors, especially for issues raising fresh capital, indicated that investors have faith in the growth story of the Indian economy, he said.

“For fresh issuances, the amount raised has been the highest in the past five years, which shows that investors believe in the growth story, which is encouraging," he said.

Notably, 2021 has seen a number of tech-led startups get listed on stock exchanges. A stellar response to Zomato’s IPO and a profitable listing in July has prompted a number of internet-led businesses to make a beeline for this route.

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