Populist SEBI

Economic Times has an editorial on the comment by SEBI Chairman last week criticising merchant banks for not leaving 'money on the table' for small investors in initial public offerings (IPOs - not to be confused with the name of this site:). I could not agree more. I find the statement asking merchant bankers to leave money on the table (a call to deliberately under-price an issue) disturbing for two reasons. One, it goes back to babu raj (bureaucratic raj) of the Controller of Capital Issues where a babu would decide the price and amount of money a company could raise. We have moved a long way from there where neither the company nor babus decide the price or quantum of IPOs. It really is a matter of millions of investors deciding (though most chose to be price takers rather than deciders) the price. We have moved to an era of full disclosure and to hark back to the babu raj will be a terrible idea. Second, there is no god given right to make free money. Issues must be rightly priced - and economics (however faulty it may be, it is the best we will have) will dictate that over-priced issues must fail and underpriced ones shift wealth from productive companies to speculators.

From a big picture too, this push is disturbing as there seems to be an attempt to push money from productive use of a working company (where IPO money goes) to speculators and flippers (those who buy in an IPO and sell immediately on listing). Clearly, investors with a time horizon of 1 to 5 years will not and should not be affected by listing gains - which is free money for neither any work done nor for any capital investment made (holding of a week to sell on listing date can hardly be called investing). While there is nothing wrong with being a speculator it is hardly appropriate for a regulator to push money from productive capital use by companies to speculators.