The Securities & Exchange Board of India (Sebi) and its Primary Market Advisory Committee (PMAC) has decided to keep on hold, the matter of mandatory IPO grading. At the board meeting on December 4, 2006, the issue of IPO grading was discussed.
PMAC recommended that in order to take the process forward, Sebi may consider mandating on an experimental basis, IPO grading for all the IPOs in respect of offer documents filed for the next six months.
After deliberations, PMAC members were of the view that it is too early to form a conclusive view about effectiveness of the present policy of ?mandatory IPO grading? and therefore, the status quo may be maintained in this regard.
The PMAC also recommended that the present status of the issuer paying for IPO grading exercise and IPO grading not being a comment on issue price, may continue. PMAC has however taken note of certain issues in this regard , which include,? performance matrix? for credit rating agencies, which may bring intended discipline amongst credit rating agencies doing grading and the need for surveillance on grades as is done in case of credit ratings. These issues were to be further deliberated in the ensuing meetings of PMAC.
Earlier Ravimohan of Ciril had briefed the Board about what the IPO grading seeks to do, that is, give the investors an easily understandable parameter about the fundamentals of the company but not on the pricing or investment value of the stock. He explained that it is essential to have a critical mass of graded issues of a wide range of companies for the development of a universe which would enable investors to make appropriate comparisons while taking an investment decision.
He also mentioned that over time, based on experience gained, it is their intention to develop the product as ?equity grading? of the company as a whole.