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From IPO to un-IPO, a strange story

The derivative trading frenzy fuels a quick journey from IPO to delisting

ICICI Securities delisting: From IPO to un-IPO, a strange storyAnand Kumar

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Over the last few days, an interesting little drama has played out around the delisting of the stock of ICICI Securities. As most readers would know, the delisting was approved by a strong majority of institutional shareholders supporting it, but a majority of non-institutional shareholders voted against it. Since the stock had a much larger proportion of the former, the proposal sailed through. After delisting, ICICI Securities will be merged back into its parent, ICICI Bank.

Delistings involving high profile corporate brands are quite rare and generally are quiet affairs. However, the ICICI delisting managed to get into the news for some decidedly wrong reasons. There was a great deal of noise on X (Twitter), with people complaining that bank employees were pressuring them to vote for the delisting. These complaints appear to be real. Many were from 'real name' accounts and had a fair amount of detail, including complaints that bank relationship managers were asking for proof in the form of screenshots that the shareholders had indeed voted in the manner that they were being forced to do.

If these accusations are indeed well-founded then they raise a few disturbing questions. Apart from the basic impropriety of the actions, how would the employees in a bank branch know about the stock holdings of their customers? Who gave them the information? Moreover, as we all know, a bank's relationship manager would never do anything without some kind of a push. These threats to vote for delisting would not be a private venture but very likely a part of an organised and incentivised program. Shareholder autonomy is a cornerstone of corporate governance and should not be allowed to be sabotaged. I'm sure a lot of people are waiting to see what the regulator does about this affair.

I must say that the ICICI Securities stock is somewhat accident-prone, so to speak. At the time of the IPO, which was just six about years back, the issue was failing and on the last day, ICICI Mutual Fund made a large investment from five of its funds to rescue the IPO. SEBI took exception to this use of fund investors' money and directed the fund house to return Rs 240 crore with 15 per cent interest to the schemes which had invested in the IPO. There were also some fines that senior brass of the fund had to pay.

So just six years ago, ICICI Bank was stretching rules to spin off this company and now they were thrashing around desperately to reverse that spinning off! Definitely, a strange episode in Indian corporate history.

However, the reason is not difficult to find. In the interim period, the brokerage business has become a moneyspinner. Moreover, given the direction in which the activity on the Indian stock markets is heading, it looks set to keep getting more and more profitable. Of course, by 'activity', I mean the gigantic amount of punting on derivatives.

This is a growth business and not just an ordinary level of growth. The explosive growth of derivative trading in India has been unprecedented, with the number of traded contracts skyrocketing from around 1 billion to 85.3 billion in just a decade. While the contract count doesn't precisely reflect the underlying impact, it highlights the frenzy that has gripped the market. Tragically, a significant portion of these traders believe that derivative trading is the essence of stock markets, overlooking the importance of fundamentally driven, long-term investments. A well-known SEBI study from the previous year revealed the grim reality that over 90 per cent of derivative traders incurred losses, underscoring the risks associated with this speculative approach to investing.

I believe that this whole episode serves as a cautionary tale from every aspect - stronger corporate governance, shareholder autonomy, an investing population that focuses on fundamentally driven, long-term investments. As the Indian stock market continues to evolve, it is crucial that regulators, market participants, and investors work together to promote transparency, fairness, and a healthy investment culture that prioritises sustainable growth over short-term speculative gains. Will it actually happen? Well, on current form, I'm not all that hopeful.

Also read: To buy more, sell a bit


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