Sebi’s safety net mechanism fails to convince industry
To begin with, they say that there is an inherent issue with the way the regulator is measuring the fall in stock price in an event where the broader market index has risen post-listing.
According to the discussion paper, in a scenario where the index is up while the stock is down, the relative fall will not be considered and the safety net will be triggered only if the absolute fall is more than 20%. In other words, if the stock is down 15%, but the index is up 10%, then only the 15% fall in the stock is considered, though the relative under-performance is 25%.
Merchant bankers, on condition of anonymity, also say that the facility of a safety net mechanism in an IPO defeats the premise that investment in an equity instrument is risky.
“What if the stock is 80-90% up from its listing price? Should the promoters be allowed to have profit-sharing. We must understand that equities are a risk instrument,” said a banker, wishing not to be named. He further stated that investors would remain in a fix even if the stock and the index were both significantly underperformed.
According to the Sebi framework released last week, if the stock and the index
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