With the government mulling extending discounts to retail investors in the upcoming disinvestments in public sector undertakings (PSUs), through either initial public offers (IPOs) or follow-on public offers (FPOs), the question before the authorities is to properly identify the beneficiaries to ensure that there is no fraud committed and that only the intended investors gain.
This is not a new idea, as Securities and Exchange Board of India (SEBI) regulations permit the offer of discounts, of the same amount, to retail investors.
To do this effectively, the government has approached the SEBI to come up with a definition that would adequately describe a retail investor.
That there can be chance of fraud committed is very much there as the government is talking about offering a discount of anywhere between a 5-to-10 per cent.
For this, the value of the existing equity portfolios would be scrutinised and those with equity investments under a certain level would get certified as retail investors.
As things stand at the moment, in an IPO, any sub-mission for buying shares that is less than Rs 1 lakh in value, is denoted as being by retail investors. However, most analysts are of the view that this is too shallow a defining method.
The government is of the opinion that defining a retail investor on the basis of the value of his total portfolio is better as this will take a holistic view of equity holdings into consideration.
However, there is a vast nebulous area left in arriving at a correct picture, even if this comes to pass, and in all likelihood, a final freezing of the method would require a data-driven system that would allow verification on an individual basis. The prospect of adequate cross-checking, at the moment, is not possible.