Returns not assured with IPO grading

Market regulator Securities and Exchanges Board of India (Sebi) made it mandatory for businesses to grade their Initial Public Offers (IPOs) in May 2007, mainly aimed at helping investors with investment decisions related to stocks.

An analysis of the current market valuation of the companies, which came out with public offering after May 2007, shows that irrespective of the grades given, a major chunk of them saw wealth erosion in the range of 20 to 70 per cent.

According to brokerage firm SMC Capitals, the cumulative market capitalisation of 63 public issues after May 1, 2007, is currently trading lower at an average of 39 per cent.

“It is time for the regulator to take a relook to the entire grading system. The whole purpose on grading is to guide investor towards the right issue, however, with such high graded issues trading at a discount, IPO investors are left wondering about dependability on grading,” SMC Capitals Equity Head Jagannadham Thunuguntla said. Securities and Exchanges Board of India  has made it mandatory for all companies to grade their IPOs from one of the credit rating agencies registered with it.