GRIP seeks big role for small investors

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SEBI monitoring market situation closely

: the market capitalisation of a company, he says. In fact, the finance ministry has recently issued a discussion paper proposing that every listed company should offer at least 25% of its shares to the public, instead of the current 10%. It has also suggested excluding institutional investors from the definition 'public', thereby throwing open access to more shares by retail investors.

The ministry also proposed to amend the Securities Contracts (Regulation) Rules, 1957 (SCRR) to usher in these changes. The government’s view is that 25% public holding would ensure that shares are widely distributed and retail investors get to participate in the success story of India Inc.

While some analysts believe that it would help in spreading the equity-cult and increasing the floating stock, others argue it may discourage enterprise. The government feels that having a greater distribution of shares would reduce the possibility of price manipulation. Market participants have welcomed the move, but said that it may be difficult to implement if it is applied retrospectively.

Meanwhile, the Sebi panel has argued for overhauling the price discovery mechanism. It has suggested that the issuer, or companies going for IPOs, should mention the 'indicative price' in the Red Herring prospectus instead of the price band. Retail investors can be given the option of participating at a maximum of 1.2 times the indicative price.

The mechanism would work like this: if the indicative price is Rs 10 per share, a retail investor can bid at a maximum of Rs 12. In case, the price discovered is higher than Rs 12, then retail investors would be allotted shares at this bid price of Rs 12. In case it is lower than Rs 12, the investors would be allotted shares at the discovered price and the balance amount would be refunded to them.

This will help "in better and more efficient price discovery" and will be administratively convenient, the GRIP report says.