IPO GRADING - SEBI Scrapped but why? - Seeker's Thoughts

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Tuesday, 26 June 2018

IPO GRADING - SEBI Scrapped but why?

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What is IPO GRADING? 


IPO or An initial public offering is when a private company or corporation raises investment capital by offering its stock to the public for the first time. Growing companies seeking capital to expand are those that generally use initial public offerings, but large, privately owned companies or corporations looking to become publicly traded can also do them.
Read more: Initial Public Offering (IPO) https://www.investopedia.com/terms/i/ipo.asp#ixzz5JUqi7JrU

IPO GRADING in India was a system to rate IPO as an optional feature in April 2006. A year later in 2007 it was made mandatory. A few years later in 2013 again made it mandatory. 

PROBLEMS/ ISSUES-
1.      There are no correlation between IPO GRADING and post listing performance. 
2.      IPO GRADING process never took into consideration - The price of public issue, factors in only the company's fundamental management quality, Business risk etc. 
3.      SEBI  has same analysis as CRISIL report companies with an IPO grade 415, which indicate above average fundamental traded at an average PIE multiple of 28 times. 
4.      SEBI board has also approved the deletion of the provision related to the safety net feature which was introduced in 2013 


The SEBI is looking at ways to facilitate fund-raising by small and medium enterprises (SME) by bringing such companies and merchant bankers where people from both sides can interact closely. Scrapping IPO grading will help these sector to be boosted.
Reference - https://www.sebi.gov.in/sebi_data/commondocs/ipograding_p.pdf