Market regulator Sebi will consider next month providing capital protection to part of investments made by very small investors in IPOs (initial public offers), although the move is being opposed by investment bankers and certain other sections of the industry.
In its last board meeting on Aug 16, Sebi had to defer a decision on providing a 'safety net' guarantee to investors buying shares through IPOs, as issues were raised about any such provisions interfering in the normal market functions where share prices move as per the fundamentals of the company and overall marketplace.
After the board meeting, Sebi Chairman U K Sinha had said that further larger consultation is required on this issue and a final view will be taken accordingly.
However, the 'safety net' proposal would be back on the agenda when Sebi board's meets next month, although some changes could be made to limit this benefit to "very small investors", a senior official said.
Sebi is of the view that a 'safety net' provision in the IPOs could help in the government's efforts to channelise the household savings into the equity market, rather than turning into 'idle money' by going to assets like gold, he added.
It is also being considered that the safety net could be provided for only the minimum lot of shares, which Sebi has proposed for every retail investors in the IPOs, the official added.
The 'safety net' is one of the key proposals being discussed by Sebi for its primary market reforms. It has been felt that such a provision would help in fair pricing of IPOs, besides providing investors some sort of a capital protection guarantee.
Last week, Finance Minister P Chidambaram had said that he has requested Sebi Chairman to consider further market reform measures for the benefit of the investors in its next board meeting.
Welcoming the wide-ranging reforms undertake by Sebi in its last board meeting, the Finance Minister had said that these measures "will stimulate financial savings among households as well as give a fillip to the mutual fund industry. More and more households should be encouraged to save in financial instruments rather than in gold".
Under the proposed 'safety net' mechanism, a certain portion of the investment made by retail shareholders in the IPOs could be guaranteed for a fixed period, which could be for six months, even if the shares' value plunge below the IPO allotment price during this time.
As per the proposal,