Daily Management Review

Stock Market Listing Regulations Made Stricter By India's Market Regulator


Stock Market Listing Regulations Made Stricter By India's Market Regulator
After a record year of Initial Public Offerings (IPOs), India's market regulator stiffened regulations for firms going public earlier this week, in a potential stalling of some of the planned new issues as the regulator strives to protect the interests of regular investors of the country as well as those from outside of the country.
According to the changes in regulations made by the market regulator Securities and Exchange Board of India (SEBI), in the case that a firm does not specify the acquisition target in its offer document, the SEBI has put a restriction on the amount of proceeds from fresh offerings that can be used for later takeovers.
"When any entity raises money under an IPO, it is for some purpose and investors are investing for that purpose, so that needs to be strictly monitored," Ajay Tyagi, chairman of SEBI, told a news briefing after the regulator's board meeting.
According to analysts, this move by the regulator could result in public listing plans of some companies being impacted in the short term.
"Inability to raise money for future unidentifiable acquisitions would impact capital-raising plans of some unicorns, particularly where such companies may not have any other use of capital and where existing shareholders are not keen to sell," Yash Ashar of law firm Cyril Amarchand Mangaldas, said.
Another of the changes implemented is imposing a cap on the number of shares that anchor investors of a company getting listed can sell – at 50 per cent of the total investments made by the investors, following a lock-in period of 30 days. Anchor investors would have to lock up the remaining 50 per cent of their stake in the newly listed companies for the period of 90 days.
Over the past one year and even during the Covid-19 pandemic, stock exchanges in India have seen significantly higher listing activities compared to previous years. This move from the SEBI comes at the end of a fabulous year for Indian stock markets and new listings,
A total of as much as $9.7 billion through initial share sales were raised by Indian companies in the first nine months of 2021, according to accountancy firm EY, which was identified as the highest for the market in any of the corresponding periods in the last two decades.
However, not all IPOs have been successful and not every company getting publicly listed has managed to raise as much money as they had hoped to.
For example, Ant group and Softback backed Indian digital payments company Paytm lost as much as 13 per cent earlier this month as the newly listed stocks of the company hit their lowest after it had made a dismal debut in November this year. the drop in value happened after the expiry of a lock-in period for anchor investors in the company's IPO.