Ashish
Rukhaiyar
ET NOW
Aug 28, 2009
THE primary market may be showing signs of recovery, with some recent big-ticket issues garnering decent subscriptions. But ask any market player worth his salt, and it is clear that confidence levels, especially among retail investors, is still low. So the question is: how did most of the issues attract retail interest?
The answer lies in a practice, although illegal, that has been prevalent in the market for long, and has once again picked up with the revival in the primary market. A cash incentive for every application submitted in the retail category.
Brokers and sub-brokers, involved in the marketing of public issues, say this is a very common practice when there is a huge demand from institutions and high net worth individuals. Investment bankers then approach brokers with a good retail client base. The broker asks his clients to apply for the IPO, with an understanding that they will be given a cash incentive per application form, and also that their bids will be financed by the broker himself. On allotment, the shares are transferred to the broker’s account. The retail investor will not get any share of the profits, if any, on listing. All he gets is the cash incentive for ‘renting out’ his demat account.
“It is a fact that retail interest is not very encouraging and convincing them for applying in IPOs has become difficult,” says an IPO marketing head of a Mumbai-based broking house. “So, we have to give them some incentive to come to the market,” he adds.
According to market watchers, the recently-concluded public issue of NHPC saw retail applicants getting anywhere between Rs 200 and Rs 250 per application. The amount differs across broking houses, with the larger ones doling out higher incentives. NHPC’s retail portion was subscribed 3.6 times.
Incidentally, during NHPC’s IPO, a leading broking house sent e-mails to its subbroker network promising a special per application incentive of Rs 60 while clearly mentioning that “as per Sebi guidelines and the prospectus, incentives cannot be paid to investors”.
“Technically, the broker has not violated any regulation,” says a sub-broker. “The broking house is only incentivising its sub-brokers. It is not soliciting investors directly,” he added. Sebi guidelines are clearly against the practice of brokers soliciting investors on the basis of cash incentives. But what has surprised many market players is the fact that perhaps for the first time in many years, a broker actually mentioned these things in black & white.
In the case of Adani Power, it is said that retail entities gained in the range of Rs 125 to Rs 200 for every application made. The retail portion of Adani Power was subscribed nearly three times. In the case of Mahindra Holidays & Resorts, the retail segment was subscribed 3.2 times. According to brokers, retail investors got anywhere between Rs 75 and Rs 100 per application.
RukhaiyarET NOW
Aug 28, 2009
THE primary market may be showing signs of recovery, with some recent big-ticket issues garnering decent subscriptions. But ask any market player worth his salt, and it is clear that confidence levels, especially among retail investors, is still low. So the question is: how did most of the issues attract retail interest?
The answer lies in a practice, although illegal, that has been prevalent in the market for long, and has once again picked up with the revival in the primary market. A cash incentive for every application submitted in the retail category.
Brokers and sub-brokers, involved in the marketing of public issues, say this is a very common practice when there is a huge demand from institutions and high net worth individuals. Investment bankers then approach brokers with a good retail client base. The broker asks his clients to apply for the IPO, with an understanding that they will be given a cash incentive per application form, and also that their bids will be financed by the broker himself. On allotment, the shares are transferred to the broker’s account. The retail investor will not get any share of the profits, if any, on listing. All he gets is the cash incentive for ‘renting out’ his demat account.
“It is a fact that retail interest is not very encouraging and convincing them for applying in IPOs has become difficult,” says an IPO marketing head of a Mumbai-based broking house. “So, we have to give them some incentive to come to the market,” he adds.
According to market watchers, the recently-concluded public issue of NHPC saw retail applicants getting anywhere between Rs 200 and Rs 250 per application. The amount differs across broking houses, with the larger ones doling out higher incentives. NHPC’s retail portion was subscribed 3.6 times.
Incidentally, during NHPC’s IPO, a leading broking house sent e-mails to its subbroker network promising a special per application incentive of Rs 60 while clearly mentioning that “as per Sebi guidelines and the prospectus, incentives cannot be paid to investors”.
“Technically, the broker has not violated any regulation,” says a sub-broker. “The broking house is only incentivising its sub-brokers. It is not soliciting investors directly,” he added. Sebi guidelines are clearly against the practice of brokers soliciting investors on the basis of cash incentives. But what has surprised many market players is the fact that perhaps for the first time in many years, a broker actually mentioned these things in black & white.
In the case of Adani Power, it is said that retail entities gained in the range of Rs 125 to Rs 200 for every application made. The retail portion of Adani Power was subscribed nearly three times. In the case of Mahindra Holidays & Resorts, the retail segment was subscribed 3.2 times. According to brokers, retail investors got anywhere between Rs 75 and Rs 100 per application.
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