A hypothetical back-testing of the Securities and Exchange Board of India (Sebi)-proposed 'safety net' framework shows one in every four initial public offerings (IPO) since 2008, when the market hit a peak before slumping into a rough patch, would have had to refund money to investors.
According to an analysis by the Business Standard Research Bureau, 43 of the 175 IPOs since 2008 which have seen a sharp fall in share prices in the first three months of listing would have had to refund money to small shareholders, according to the framework laid out in Sebi's discussion paper.
According to the paper, 'Mandatory Safety Net Mechanism', floated by Sebi last month, if a volume-weighted average market price of a newly-listed stock for a period of three months from the date of listing, depreciates by more than 20 per cent from its issue price or if the fall in the stock price is 20 per cent more than the fall in the broader market, the company will have to refund money to investors.
|3mth average |
|BSE 500 |
|Indo Thai Securities||74||13||-82||-1||-82|
|Source: BS Reearch Bureau; |
*Daily volume-weighted average price for first three months after listing