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After opening the day on a positive note, the Indian indices registered slight losses and went on to trade marginally higher. Sectoral indices are trading on a positive note with stocks from the IT and healthcare sector witnessing maximum buying interest.
The BSE Sensex is trading up 83 points (up 0.3%) and the NSE Nifty is trading up 28 points (up 0.3%). The BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 66.46 to the US$.
As per an article in the Economic Times, the Securities and Exchange Board of India (SEBI) is carrying out a comprehensive review of rules for stock brokers. This comes on the back of recent instances where the regulator came across instances of siphoning of funds and securities from investors' accounts.
As per the news, the regulator had received hundreds of complaints from investors of Unicon Securities and Kassa Securities, where crores of rupees were siphoned off from clients' accounts. To deal with the issue, SEBI will put in place "red flag indicators", which will show whether brokers are misusing clients' funds and securities.
Apart from the above, the regulator is also said to ask credit rating agencies (CRAs) to make greater disclosure about suspension and subsequent withdrawal of ratings, and periodic review of the criteria used for ratings.
This is on the back of recent episodes of defaults such as Amtek Auto on its loan repayment to JP Morgan Asset Management. With the increasing number of defaults triggered by some recent drastic downgrades by rating agencies, regulator may be now taking up these rating agencies to task. In September 2015, Amtek Auto, a maker of auto components, failed to repay Rs 8 billion worth of bonds on maturity, following which JPMorgan Mutual Fund, which was holding the bonds, restricted withdrawals from two of its funds.
The markets regulator is now finalising its policy actions with regard to CRAs after taking into account the suggestions made by the expert committee as well as by its International Advisory Board.
SEBI does not want a repeat of the JPMorgan mutual fund issue. After the sub-prime crisis, it was the first time India faced such a situation. This will help the investors take an informed decision while the 'credibility risk' can keep the CRAs as also the concerned companies on their toes.
This, if executed, will bring in much relief. The need for regulatory oversight of such companies, and the agencies that rate them is higher than ever. Meanwhile, investors would do themselves a service to not rely blindly on the views of rating agencies and brokers, and do their own homework and independent thinking.
In another news update, HPL Electric and Power initial public offering (IPO) got oversubscribed by nearly eight times at the close of bidding on Monday.
The quota reserved for qualified institutional buyers was subscribed 5.7 times, while that of non-institutional investors got subscribed 22.2 times. The portion reserved for retail investors was subscribed 2.4 times. The company has already mopped up Rs 1 billion from anchor investors by selling shares at Rs 202 apiece.
These are the kind of numbers that typically only come in when the IPO season is in full swing. Unlike winter and summer, the IPO season doesn't follow a yearly pattern. It comes when the markets are rising and investors are willing to pay up. Slightest sign of a weak market, and it is quick to go away too. And so does the hype around many of the stocks, especially the fundamentally weak ones.
IPOs have kept the Indian markets busy of late. Listing gains and over subscription of the issues have caught the eye of market participants. With this euphoria, there are many more IPOs lined up in the coming days. This begs the question: What should be one's approach towards IPOs?
In our view, one should not get swayed away by the buoyancy surrounding IPOs. Instead, what one should look for in IPOs is the fundamentals of the business and the attractiveness of valuations.
We at Equitymaster have always recommended IPOs cautiously. And Rahul Shah, co-head of research at Equitymaster, best explains our rationale behind this approach. As he wrote in one of the editions of The 5 Minute WrapUp... 'We know what a dirty game the IPO business is. We've seen it over and over again: It's a game where the odds are stacked against investors. So for us, the equation is simple. We'd rather face criticism in the short run than see our subscribers lose money over the longer term. We weren't afraid to do this during the hot IPO days of 2007, and we're not afraid to do it today.'
If you ask us, every IPO needs to be evaluated on its own merit. When there is a need to go through a checklist for buying stocks, why not so in the case of IPOs?
There are several big IPOs in the pipeline in the last few months of 2016. In case you wish to run them through a handy checklist, we have something for you.
Download our Handbook of IPOs to be able to pick only the right ones for you.
For information on how to pick stocks that have the potential to deliver big returns, download our special report now!