Retail investor’s definition likely to be changed

The Securities and Exchange Board of India (SEBI) is planning to enhance the maximum investment limit for retail individual investors in public issues from Rs 1,00,000 to Rs 2,00,000. In a discussion paper floated by the market regulator, SEBI has argued that “retail individual investors, who have the capacity and appetite to apply for securities worth above Rs 1,00,000 were constrained from doing so because of the Rs 1,00,000 limit.”

The discussion paper also contends that since 35 per cent of the public issue is to be allocated to retail investors, in case of large public issues – with issue size in the range of Rs 4,000-6,000 crore -- the limit of Rs 1,00,000 would mean that the issue has to receive a minimum of 1,50,000 to 2,00,000 applications from retail category. “This could be a daunting task considering that in case of well oversubscribed issues, the number of applications received from Retail Individual. Investors was in the range of 35,000 to 70,000,” it says.

It further observed that the rate of inflation in India has increased from about 4 per cent in 2005, when the Rs 1,00,000 limit was fixed, to about 12 per cent currently. In the same period, the BSE Sensex has risen from about 8,000 points to about 18,000 points, meaning that retail investors now buy a lesser number of securities with Rs 1,00,000 than they would buy with the same amount in 2005.

Prior to 2005, retail investors could apply for shares only up to Rs 50,000. Later, it was increased to Rs 1,00,000 in March 2005.

Jagannadham Thunuguntla, head of equity, SMC Capital, said that the move is aimed at increasing the retail participation in public issues. “Retail participation in recent IPOs (initial public offers) had been poor and the regulator wants to improve the situation. It is a move in right direction as the purchasing power of Indians have also increased over the years,” he said.

SEBI has sought comments/suggestions from public on the proposed changes on or before September 3, 2010.