Under the system, an investor’s money leaves his bank account only on allocation of shares.
The Securities and Exchange Board of India’s (Sebi’s) move to start a system for initial public offers (IPOs) under which an investor’s money leaves his bank account only on allocation of shares has failed to find many takers.
The application supported by blocked amount (ABSA) system was started as a retail investor-friendly move. However, if the number of applications under the new mechanism in the recent IPOs is any indication, it has failed to attract investor interest. In the recently-concluded Oil India IPO, only 8 per cent retail applications came through the new system, which was introduced after complaints of pile-up of IPO refunds.
The IPO market had become virtually dead after Sebi announced the new guidelines. In the global meltdown that started last year, there were only a few small companies that tapped the primary market. Hence, ASBA’s practicality could not be tested.
However, even after the primary market revived and a few issues tasted stellar subscription figures, the system has not become popular with retail investors. Mahindra Holidays was the first IPO to hit the market after a lull of four months. While the retail portion was subscribed 3.36 times, just 2.5 per cent of the total retail subscription was through the ASBA route.
“The response has not been good. A number of investors are still not aware of this mode of application. Brokers are also not pushing it because of lack of incentive. But it will pick up over time,” said an investment banker who did not wish to be named.
In the NHPC IPO, only 11 per cent retail investors applied through this route, even as the retail category was subscribed 3.9 times. In case of Adani Power, only 10 per cent applications come through this route.
“There are a lot of operational hassle involved in investing through the ASBA system. Since the average value of applications has gone down, it does not make sense for retail investors to incur an extra cost in terms of logistics to go for this method. Banks have not been pushing for it actively since they are not IPO distributors traditionally,” said Maju Nair, head of distribution at Sharekhan.
Recently, Sebi asked all merchant bankers to ensure that banks are paid a commission for the service rendered. However, there is a tussle going on between brokers and banks on sharing of the commission.