Chapter VIII

Findings of the Survey

8.1 Questionnaire design:

The questionnaire was designed to have an overview of retail investor’s attitude towards
investments in general and IPO’s in particular. The researcher also intends to explore retail
investor’s awareness regarding the grievance redressal mechanism and their perceptions
about the role of the regulator. Hence the questionnaire is descriptive and not analytical in
nature.

The objective of conducting the survey was not to generalize the findings to the entire
population of retail investors but to supplement the findings is the study. The questionnaire
was initially administered to a purposive sample of 200 Investors who have applied in the
IPOs in the last five years. The respondents were deliberately chosen from the audiences of
the investor awareness programmes conducted by BSE, CDSL and SEBI in Pune between the
period December 2011-November 2012 and the investors who visited broking firms. The
responses from the investors reflect the prevailing market sentiment during the period when
the survey was conducted.

The questionnaire is divided into four parts; the first part relating to the investors
demographic details, the second part relating to their general investment experience; the third
part relating to their IPO investments and the fourth part was on their perceptions about SEBI
and awareness about redressal mechanism and education.

Out of the 200 questionnaires, only 196 were considered and the rest were rejected due to
inconsistent information. Out of the 196 filled in questionnaires, 167 investors had
participated in the IPOs in the last 5 years and 29 investors could not given adequate
information on questions relating to IPOs. However their responses were taken into
consideration for assessing their general investment behavior and perceptions about SEBI.

Findings of the Survey

8.2 Demographic profile of the sample

• The sample comprised of 45.40 % respondents in the age group of 21-35 years which
is normally considered as the young and earning age bracket. 34.18% of the
respondents belong to the age group of 35-50. A relatively less percentage of 17.34 %

150
 belong to the age group of over 50. Hence the sample comprises of investors majority
of them in the middle age category as shown in Table (13)
• The respondents consisted of 70% Males and 30%
30% females as shown in Table (14
(14).
The participation of female investors is less when compared to male investors.
• 45.91% of the respondents are a Post graduates which signifies that they are well
educated as shown in Table (15)
(15
• The distribution of the sample on the basis of occupation suggests that 42.34% of the
investors are employed in the top/middle level management in a company followed by
22% of investors who have self employed business. The number of people in the
governmentt service is very low (2.04%). Majority of investors are employed in the
private sector.14% of investors are self employed professionals. Investors who are
retired or unemployed constitute very small percentage of the sample which is 3% and
5% respectively.. Students constitute 4% of the sample. (Table 16) and Fig 13

others Student
Retired
3% 2%
OCCUPATION 4%
Unemployed Self employed
5% business
22%

Top/middle level
management
42%

Self employed
professional
14%
Government Service Home maker
2% 6%

Figure 13 Sample Composition on the basis of Occupation

• 80% of the Investors are married and 20% are single. There are no investors in the
categories of divorcee,
cee, widows,
wid widowers (Table 17).
• Income of the Investor is a critical factor influencing their investment decisions as this
determines their choice of investment, their asset allocation and risk taking ability. It
also determines their investment goals. 44% of the
the investors belong to the lower
annual income upto 5 lacs. 20% of the investors belong to the income bracket of 5-7
5
lacs.5.5% of the investors belong to the 77-9
9 lacs income group, 4.5% of the investors
belong to 9-11
11 lacs category. 20% of the investors bel
belong
ong to income bracket of more
 than 11 lacs. The findings suggest that most of the investors are from the lowest
income bracket which identifies that they are investors of small net worth. There is a
possibility that investors may have understated their income as disclosing one’s
income is considered as a risk. (Table 18).
• 43.36% of the Investors save upto 20% of their income.32% of investors save upto
20-30% of their total income. A relatively less percentage of the sample which is
16.32% invests between 30-40% of the salary. A very small portion of the sample
which is 7.65% invests more than 40%. From this we can infer that majority of the
people are able to save only a modest amount of 20%. This can be attributed to the
fact that inflation has eaten into the saving potential of the Investors (Table 19)
8.3 Response for questions based on general Investment behavior:
• Reason for Investment is an important factor affecting the choice of investment.
Every investment offers certain benefits in terms of tax savings, liquidity, safety and
return to the investors. We can infer that tax planning is a strong reason for investing.
Cross tabulation of data about investment preferences indicates that with level of
education also indicates that across all classes’ tax planning is an important factor for
investing followed by retirement. (Table 20)
• Studying the classification on the current investments held by the investors (Fig 14)
show that all the investors have invested in shares directly followed by Mutual funds
and Bank Deposits. Mutual funds have been preferred over bank deposits. This can be
attributed to the fact with the entry load on mutual funds removed by SEBI, the
administrative costs for the mutual fund investments has reduced. This is a favorable
trend. (Table 21)

152
 Current investments held
250
200
150
100
50
0

Figure 14 current investments held by the investors

• Holding a demat account and a trading account is an essential prerequisite for trading
in shares. A significant majority of 82% of the investors have both demat and trading
account. 18% of the investors have only a demat account. This could be attributed to
the fact that these investors may have only applied for shares in the IPO without
wit
intending to trade in them (Table 22)
• With regards regularity of investment, 45% of the investors surveyed invest
regularly indicating a disciplined approach to investing followed by 41% of investors
invest randomly and 13% of the investors invest before the close of the financial year
for the purpose of tax saving indicating that they could be making a hurried choice of
investing in tax saving avenues. In their rush for investment they might make a wrong
decision and may not check the suitability of the investment for their requirements.
(Table.23)
• Majority of investors (41%) do not review their investments on a regular basis as per
changes in the market. Diversification of investment among different stocks is
important to disperse risk. It is also a factor that improves the returns. However
43.87% of the investors have minimum diversification with a portfolio of just 11-5
companies and 24% of the investors have a moderate diversification of 5-10
5 stocks.
This can be attributed to the fact that small investors have a practical difficulty in
supervising a portfolio of too many companies. However 11% of investors have a
 wider diversification of more than 20 stocks which indicates that they are seasoned
investors.( Table.24)
Interface with a broker is essential for trading in shares. This could be through an
online broker where the investors trade directly through the online trading portal or
trade through a physical broker who will execute trades on behalf of the investor
while offering them investment advice. 55% of the investor’s trade through a physical
broker and 45% of the investors trade online. (Table 25)
• Out of the investors who trade offline, the predominant reason for trading offline is
convenience cited by 38% of the respondents. This is followed by 30% of the
respondents citing that broker is also their advisor. Only a small segment of 3% of the
investors consider buying through broker is cheaper. 8.73% of the investors have cited
non accessibility to computer/internet as the reason. Trading through physical broker
is still considered a favorable option by retail investors despite the emergence of
internet trading. As on line trading requires the time and skill which many investors
may not possess, they rely on the broker (Table 26)
• Comparing the topmost concern of the investors with their mode of trading, whether
through broker and directly through online interface, the findings as seen in Fig 15
suggest that

Majority of investors who trade directly feel that bad choice of investment is
their topmost concern (Table 28). From this one can infer that although
investors trade independently they may lack right information to make a
suitable investment in line with their investment goals. A relatively less
number of people who trade through broker feel that they have made a bad
choice. This upholds the earlier view that retail investors rely on the broker for
advice. Majority of Investors who trade through brokers however express a
lack of skill to monitor investments (Table 29).

When it comes to Scams and frauds, there is no significant difference between
the investors who trade through a broker and who trade directly. This can be
due to the fact that scams and frauds are external events to which both the
categories of investors are equally exposed.
Hence from this perception we can infer that although majority of investors
trade through brokers for convenience and advice, yet they feel that they may
be misled by the brokers and other distributors.

154
 Concerns of Retail Investors who trade directly vs
those who trade through brokers.
Trade Directly Trade Through Broker

50
40
30
20
10
0

Figure 15 Concerns of Retail Investors who trade directly vs those who trade through brokers.

• The topmost concern of investors with respect their investment, cited by 37.24% of
the investors,
vestors, is bad choice of investment followed by manipulation by operators cited
by 17.34%. Lack of protection from scams and frauds are cited by 17% of the
investors. 15% of the investors feel ‘Price volatil
volatility’
ity’ as their topmost concern.
concern Table
(28)
• With respect to the problems that retail investors have experienced against which they
want to complain, a substantial number of investors (42.34%) of the investors felt that
loss on shares trading below the issue price is their problem. As the securities market
marke
especially the IPO market has not given returns with majority of the stocks trading in
red, this finding is in line with the gener
general
al market sentiment. Table (30) and figure
(16)
 90
80
70
60
50
40
30
20
10
0

Figure 16 Problems of Retail Investors that tthey want to complain against

• Heavy Demat charges have been cited as the second major problem by 26% of the
investors. 23% of the investors feel that KYC norms are cumbersome.19% of the
investors feel brokerage commissions are high. Refund of allotment money
mone in case of
unsuccessful application has been cited as a problem by only 10% of the investors.
These finding suggest that topmost problem is the wealth destruction of caused by
securities trading below the issue price. Demat and brokerage charges even tho
though
have been considerably reduced yet there is a perception that they are high. (Table 30)
• With respect to what the invest
investors consider when they buy and sell their investment,
an equal percentage of people have cited that Brokers advice (38%) and self analysis
ana
of the company as the reasons. Buy and sell calls on TV channels is cited by 23% of
the respondents followed by SMS alerts (6.12%). An insignificant percentage of 2%
of the respondent’s portfolio is managed by the broker through a POA. Hence the
inference
rence is that majority of the investors rely on external sources of information
which are to a large extent
nt are unregulated. Table (31)
(31

8.4 Questions on IPO experience.

• Out of the 196 respondents surveyed 167 participated in the IPO in the last five years
(Table 32).
• As far as the reasons for not participating in the IPO are considered, a significant
majority of the respondents (58%) consider investing in the secondary market better
than in an IPO. 17% of the respondents consider the IIssue
ssue price being high as the
 reason for not investing. 10% of the investors feel inadequate information as the
deterrent for participating in the IPO (Table 34).

8.4.1
.1 Reasons for Investing in an IPO

• For investors who subscribed to IPO, listing gains ((49%) is the significant reason for
investing indicating that the lure of making a quick gain is their main reason for
participating in the IPO. This validates the popular perception that retail investors
invest in an IPO for making short term gains.
gains.29% of the investors are of the opinion
that in the long run the returns are going to be good despite short time volatility. 24%
2
of the investors consider it as a good entry point. Only 12% invest because of the
discount being offered to the retail investors.(Table 35) and Figure 17

Reasons for Investing in an IPO

Returns in Good entry

long run points
27% 21%

Assured allotment
1% Listing gains
39%
Retail investor
discount
12%

Figure 17 Reasons for Investing in an IPO

8.4.2
.2 Making use of Increased Investment Limit

• The investment limit for investors in the retail category has been increased from
Rs1.00 lac to Rs 2.00 lacs in an issue with effect from 2010. It is important to know
whether or not they are availing the revised investment limits. A majority of 73% of
the investors are not availing
availi the revised investment limit (Table 37)
• A small percentage (14.37%) is of the opinion that the limit should be further
increased. 37.72% of the investors are of the opinion that the limit should not be
 increased and a significant percentage of 49% of the investors are unsure whether or
not the limit should be increased (Table 38
38).
• Comparing
ng the income of the investor with that of the amount of subscription in an
issue we find that investors in the income category of up to Rs 5.00 lacs and Rs 5.00
to 7.00 lacs mostly invest upto Rs 15,000 in an issue. Investors in the higher income
bracket also invest to a small extent upto 15,00
15,000
0 in an issue as seen in Fig 18

Subscription level in an IPO based on Income

35
30
25
20
15
10
5
0
< 15000 <30000 <60000 <120000 >120000 N.A
Size of application in an IPO in Rs
< 5 Lakhs <7 Lakhs <9 Lakhs <11 Lakhs > 11 Lakhs

Figure 18 Subscription level in an IPO based on Income

An important finding is that majority of the retail investors are not availing the revised
investment limit for retail investors
investor in Initial Public Offerings (Table 33).
 Important Factor influencing the choice of an IPO based on mode of trading
Trade Directly Trade Through Broker

50
40
30
20
10
0
Broker Self-Analysis
Analysis News Word of Not Answered
Channels & Mouth
Papers

Figure 19 Important Factor influencing the choice of an IPO based on mode of trading

• Comparing the important factor influencing the choice of an IPO with the mode of
trading of the investors, we can see that for investors who trade through broker,
advice of the broker is an important factor influencing the cho
choice
ice of an IPO. Self
analysis is an important factor for the investor who trade directly. A majority of
investors who trade directly and those who trade through a broker also depend on
News channels and papers for the choice of an IPO. Majority of investors who trade
through broker rely on word of mouth for their choice of an IPO as seen in the figure
19 above.

8.4.4
.4 Reading the Prospectus

• Reading the prospectus helps the investor to ascertain the risks, the future growth of
the company, the promoter’s background
background and the objectives of the issue. Although the
caveat “Investors must read the offer document” is issued repeatedly, a significant
percentages (51%) of the investors do not read the prospectus indicating that they are
not making use of the information that is being provided (Table 39).
• Even among the investors who read the prospectus, a majority of 48% of the people
read only information about the Company. A very small percentage of 7.22% of the
investors read the legal and
nd other information (Table 40).
40
• 75% of the investors who read the prospectus are of the opinion that the prospectus
helps them to take an informed decision. This is shows that the objective of providing
information in the prospectus has been successful as the investors are benefiting from
f
 it. However 18% of the investors are not sure whether or not the information has been
helpful to make an informed decision (Table 41
41).
). 7% of the investors feel that reading
the prospectus does not help them to take an informed decision.
• The complete DHRP is available on the website of SEBI, the Lead Managers to the
issue and the stock exchanges; however 54.49% of the investors of the investors do
not refer to prospectus on the website. Only 9% of the investors read the complete
prospectus.

8.4.5
.5 Important Factor Considered before investing in an IPO

Important factor considered before investing in an IPO

Fig.8.8

1% Promoters background
15%

sector of the company

3%
38%
Issue size and price
8%

IPO grading

Participation of QIB
26%

Figure 20 Important factor considered before investing in an IPO

Promoter’s background is considered as the most important factor by 38% of the investors
before investing in an IPO. 26% of the investors feel the sector of the company and its
product are the most important factor. IPO grading is considered most important by only 3%
of the respondents.
dents. Interestingly Issue price and issue size are considered most important by
only 8% of the investors. Participation from the QIB’s is considered important factor by 15%
of the investors. A negligible amount of 1% of investors considers the reputation of the
Merchant Bankers as the mostt important factor (Table 42).
42

The fact that promoter’s background is considered by investors before investing in an IPO is
has been proved in case of ‘Reliance Power’, ‘India Bulls power’ and JSW energy which
have been oversubscribed in the retail investor’s category purely on the reputation of the
Promoters. The disclosure made in the prospectus had no bearing on the investor perception.

Although Merchant Bankers have a significant role to play in the IPO process and SEBI has
mandated disclosure of track record of Issues by Merchant Bankers, 55.68% of the investors
consider the reputation of the Merchant Bankers as the least important factor (Table 43).

8.4.6 Preference between the IPO of a PSU and a Private sector undertaking.

Offerings of Public sector undertakings are perceived as safe for retail investors as they are
owned by government and considered as trustworthy. 61% of the investors prefer the IPO of
a public sector undertaking while 39% prefer the IPO of private sector undertaking (Table
44).

8.4.7 Concerns with respect to Issue process and allotment:

• Allotment of shares is subject to valid bids being received and until recently the
allotment is proportionally done in case of oversubscription. 50% of the investors are
satisfied with the allotment process. 41% of the investors have expressed that they are
not satisfied with the allotment process. A very small portion of 8.98% of the
investors have expressed that they are very satisfied with the allotment process (Table
45).
• Out of the investors surveyed 68% of the investors claim that the reasons of rejection
are not known to them.

8.4.8 Retail Investors perceptions regarding Issue Process

• Refund of unsuccessful allotment money is one of the problems associated with the
IPO process. Out of the investors surveyed 41% of the investors agree that the refund
is without delay.20% of investors strongly agrees about it. 24% of investors disagree
with this statement. 14% of investors are indecisive about it. Only 1% of the investors
strongly disagree with it. The inference that can be drawn is that the intensity of the
problem has reduced with SEBI actively taking steps to address the problem with the
implementation of ASBA, ECS and RTGES (Table 45).
• 50% of the investors disagree with the fact that 35% of reservation in the net offer to
the public is adequate. 10% of the investors strongly disagree with this. Hence the

161
 inference is that 60% of the investors are not satisfied with the present allocation to
retail category from the net offer to the public (Table 45).
• 48% of the investors disagree with the opinion that payment of 100% is a problem
indication that they are fine with the payment of full amount. 16% of investors
however agree that it is a problem and 12% of investors strongly agree (Table 45)
47% of the investors agrees that minimum lot size and multiples are suitable for
applying in an IPO. 16% of investors strongly agree to this. 14% of investors
disagree with this. 15% of the investors neither agree nor disagree. Hence 53% of the
investors agree that minimum lot size and multiples are suitable for applying in an
IPO (Table 45).

The inference that can be drawn is that investors are relatively comfortable with the minimum
lot size and its multiples and do not see it as a hindrance to participate in the IPO market.
Majority of investors (46%) of the Investors do not seem to have a problem with payment of
100% at the time of bidding.

8.4.9 Pricing of the IPOs

A majority of 67% of the respondents consider IPO’s highly priced 32% of the respondents
consider them reasonably priced. A very small percentage of 1% considers the IPOs low
priced. Hence the inference is that majority of investors find the valuation of the IPOs high.

However it had been noted before that, retail investors did not consider Issue size and Issue
price as an important factors for selection of an IPO at the time of application. The inference
that could be drawn is that, although retail investors do not consider the IPO to be highly
priced at the time of applying, the fall in the price post listing is the reason for this perception
Fig 21. (Table 46)

162
 Retail Investor perception about Pricing

1%

32% Highly priced

Reasonable priced
Low priced

67%

Figure 21 Retail Investor perception about Pricing

• Book Building process is a transparent bidding process that allows the market to
determine the price based on the demand. Only retail investors have the option of
bidding at cut off. Out of the investors surveyed a majority of 90% of the investors do
not participate in the price discovery process as they bid at cut off.. Only 9.5% of the
investors surveyed
yed bid at desired price.
• 51% of the investors surveyed are unsure about the effectiveness of Book Building in
price discovery and 33% of the investors feel it is not a pr
price
ice discovery process.
Only 15% of the investors surveyed feel that Book Building is a price discovery
process. Once can infer that retail investors are concerned about getting allotment
and hence bid at cut off. They are not aware of the price discovery through Book
Building (Table 47).
• Retail investor’s gauge the quality of the issue by the QIB participation considering
that QIBs are informed investors. An extra day for bidding has been introduced by
SEBI to enable Retail investors for this purpose. 58% of the investors surveyed bid
on the last day indicating that they are making use of this facility out of which 17%
always bid on the last day.14% are not making use of this facility. This shows that
most of the retail investors are taking benefit
bene of this facility (Table 48).
• Return from investment has been negative for 48% of the investors surveyed. Only
12.5% of the investors state that the returns have been positive. Rest of them have not
reviewed their investment (Table 49
49).
• When it comes to the holding period of the securities that the retail investors have
bought it through IPOs 29 % of the investors intend to sell the shares within a few
days denoting that listing gains has been their objective of investing in the IPO.24%
of the investors hold the shares for few months but not more than a year. 47% of the
investors however intend to hold the shares for some years. Hence one can infer that
IPOs are also perceived by a significant percentage of investors as a long term
investment with the belief that irrespective of short time volatility, in the long run
returns will be positive (Table 50)

8.4.10 ASBA

• ASBA has been introduced to do away with the problems of the delay in the refund
process. However it appears that retail investor’s awareness of ASBA is still less.
Only 19% of the investors have applied In IPO through ASBA facility.81% of the
investors have not made use of the ASBA facility (Table 53). One of the problems
with respect to low popularity of ASBA has been lack of awareness of the facility
and the fact that every bank and branch was not listed as a Self Certified Syndicate
Bank (SCSB). No assistance in filling the form has been cited as a reason by 34% of
the respondents (Table 54).

8.4.11

Investor perception on whether they find it difficult to participate in the Primary

market

• 62% of the investors surveyed do not find it difficult to participate in the primary
market. Only 28% of the investors find it difficult to participate as seen in (Table 51).
Their reasons for finding it difficult to participate in the primary market range from a
host of factors. Non accessibility to collection centers appears to be a major problem
for 32% of the investors. Second important problem is the delay in the refund of the
application money for 23% of the investors. For 15% of the investors are not clear
about the instructions. Complicated form and difficulty of instructions are the
problems only for 5% and 6% of the investors respectively (Table 52).

164
8.5 Perception about the role of SEBI

The perception that SEBI is an effective regulator seems to be strong with 68% considering
so. 26% of the investors are not aware about SEBIs role (Table 55). 67% of the investors
agree that SEBI ensures that investors are educated and protected. A small percentage of 9%
disagrees with this statement. 24% of the investors are not aware of SEBI’s role. 55% of the
investors agree that SEBI ensures that the Book Building is transparent. 29% of the investors
are unaware of SEBIs role in making the Book Building process transparent. 16% of the
investors do not agree with this role of SEBI. A majority of 63 % agree about SEBIs role of
ensuring disclosures are in place. However when it comes to SEBIs role in checking
malpractices and defaulters the perception of investors about SEBI is not encouraging.46% of
the investors agree about this role of SEBI.25% of the investors disagree with this and 29%
of the investors are not aware about SEBI’s role. Majority of investors (53%) are not aware
about SEBI’s role of providing compensation with only 14% of the investors agreeing to this.
The inference is that the perception regarding the role of SEBI in promoting disclosures and
awareness seems to be strong, however the same cannot be held for awarding compensation.
Most of the money disgorged from the entities guilty of violating SEBI’s regulations is
credited to the Investor Protection Fund of India. Very rarely investors are compensated
(Table 56).

8.6 Awareness about grievance redressal and Investor awareness

• It also appears that SCORES is not very well known to retail investors with 78% of
the investors surveyed unaware of this facility (Table 57).
• A majority of 51.53% of the investors have attended the investor awareness camps.
Majority of investors have attended awareness programmes conducted by Stock
exchange (31.63%) and CDSL (35.20%). Very few investors have attended the
investor awareness programmes of SEBI and NSDL. It is observed by the researcher
that maximum number of awareness programmes is conducted by BSE and CDSL
compared to SEBI and NDSL.

165
8.7 Association with Investor associations

• Small investors need a forum through which they can make representations before the
regulators. 92% of the investors surveyed are not members of investor association.
(Table 63)

8.8 Learning outcome from investor awareness programmes:

A major learning outcome for investors who attended the programmes is awareness about
opening demat a/c 44.89% followed by the technical issues of investing like investment as
per risk profile and power of investing 37.24%). Awareness on the procedure to lodge a
complaint 2.04% and caution to exercise while investing appear and rights of the investors
3.57% appears to be less. It has also been the observations of the researcher that the objective
of investor awareness programmes is to create awareness about demat accounts with the
intention of enhancing the business of the Depositories and the participants and not to
enhance their knowledge on grievance redressal and rights. (Table 58)

8.9 Source of Information accessed about investments:

Newspapers and magazines are the first source of information accessed by investors about
information on current investments 57%. This is followed by television 50% and broker 44%.
Websites of the stock exchanges are referred by 26% of the investors; website of the
Company is accessed by 14.28%. Only negligible 1% of investors visit the website of SEBI
for access of information about the company Out of the investors surveyed CNBC-TV 18,
business news is most viewed by the investors surveyed 70% followed by NDTV profit 32%
and ZEE Business 21% (Table 60).

8.10 Websites visited to obtain education on the market:

However merely 6.5% of the investors surveyed have accessed www.watchoutinvestors

registry. Majority of investors however visit moneycontrol.com. Websites like the iepf.gov.in
which is maintained by the Ministry of Corporate Affairs (MCA) with the objective of
educating investors and investor helpline, a free helpline of Midas touch Investor association
(which is not operational now) have not be accessed by investors ( Table 61).

166
8.11 Rajiv Gandhi Equity Scheme

From the investors surveyed, 32% expressed that it will encourage them to invest in primary
issues in future if it is extends to all investors. 31.63 % of the investors are indecisive about
their interest if extended to them (Table 62).

8.12 Interest towards doing a course in capital markets

There is strong inclination on the part of retail investors to know more about investing in the
market as 57% of the investors surveyed are interested in doing a course in the Capital
market. Investor awareness programmes are only helpful in acquainting the investors about
the nuances of opening a demat account and making them aware of their rights, however a
deeper understanding of the markets is needed so that investors not only understand the
technical issues of investment but also to able to assess the fundamentals of the company
(Table 64).

8.13 Solution for better investor protection

48% of the investors surveyed state that effectively educating the investors is the best way to
protect them from the irregularities in the market. This is followed by 20% of the investors
who feel punishment of the defaulters. The need for a separate Act for investor protection is
felt by 18% of the respondents (Table 65).

The responses through questionnaires from investors were collected during the period
December 2011 to November 2012. However a lot of reforms were introduced in the Primary
market since then. Revisiting the investors to get their opinion proved futile as many were not
aware of the reforms and had stopped investing in the market due to losses.

Hence structured interviews of brokers and Merchant bankers were conducted to understand
the efficacy of reforms. The findings have been reported on the basis of the main themes
across the findings.

8.14 Findings of Interviews of Brokers:

8.14.1 Top most concerns of retail investors:

• The brokers interacted were of the view that lack of financial literacy on the part of
retail investors is a main concern. According to the brokers, retail investors do not
have a goal oriented approach towards their investments and give into peer pressure.

167
 They are unable to time the market. They enter the market at high and exit at low.
Their motive for applying in an IPO is mostly for listing gains.
• The brokers were unanimous about the fact that very few investors read the offer
document to see the sector, its prospects. Retail investors do not understand terms
like ‘book value’ and ‘P/E ratio’. They hold the shares for few months and not more
than a year. “Booking loss is painful for retail investors so they tend to postpone the
regret they feel at having made the wrong decision The financial behavior of the
investors does not allow them to reinvest in the same scrip once they exit from the
copy”321
• Brokers are of the view that financial planning is misunderstood as tax planning by
many retail investors. Investments are made towards the end of the financial year in
investment which may not suit their investment goals. They do not review their
investments on a regular basis. Brokers also feel that retail investors indulge in intra-
day trading and ignore the fundamentals of the company.
• Pricing of the issue is major concern with respect to IPO. Majority of the brokers feel
retail investors are no longer interested in IPOs. Frequent changes to KYC norms also
dissuade retail investors to pursue equity investment, brokers feel.

8.14.2 Criteria for identifying retail investors:

• Majority of the brokers are of the opinion that investors of HNI category are
benefitted from the increase in the limit. To identify genuine retail investors, some
brokers feel that there has to be an income based investment limit.
• One of the brokers interacted said “If an investor has to put in Rs. 2 lacs in one public
issue, then he/she must be having an investible surplus of at least Rs. 10 lacs
(assuming 20% allocation to one instrument). Hence this definition does not actually
indentify an investor of small means”
• Few brokers have also suggested bringing down the limit from Rs2 lacs to Rs 50,000
to really identify small investors.
• Some brokers who have been Underwriters were of the opinion that issuers prefer
QIB to retail investors as it adds to the prestige of the company and more is the
number of small investors more is cost of servicing (correspondence like annual

321
Quoted from the transcript of the Interview conducted of a broker

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 report etc.) Brokers were also of the view that when many issues hit the market at the
same time, the true retail investor will not be having surplus funds to invest in all the
issues. “It is only HNI who has funds to put in”. Also investor with small means will
not want to take the risk of equity investment. Hence any increase in the investment
limit will not benefit retail investors.

8.15 Reservation of 35% to retail investors whether adequate:

• Majority of the brokers interacted were of the opinion that the reservation to retail
investors has to be increased. They feel that as Institutional investors are bulk buyers
they can also buy after listing.

8.16 ASBA

The interaction with the brokers has also revealed that ASBA has not yet been
adopted by investors completely. Retail Investors are still comfortable paying through
cheque as it gives them time to arrange for funds. However brokers also agree the
Syndicate ASBA introduced by SEBI has encouraged brokers to promote ASBA.

8.17 IPO grading

Majority of the brokers are of the opinion that more than the IPO grade, retail
investors go by the promoters reputation. Most of the IPOs are sold by word of mouth
and investors subscribe to issues to avoid the left out feeling. Grading must also
review the price to be truly effective according to the brokers.

8.18 Reforms

• The recent reforms introduced to by SEBI including Circuit Filter, mandatory

allotment, shortening the time between issue closing and listing are all much needed
reforms according to majority of the brokers. The Circuit Filter has almost eliminated
manipulation in case of small and mid cap companies, brokers feel. However some
brokers also feel that retail investor’s interest has not been revived since these reforms
as most of the shares are trading in losses. Majority of the brokers were of the view
that IPOs has lost the favor of retail investors. While information regarding the
reforms is widely disseminated by SEBI through its circulars, some of the brokers
were not yet aware of reforms like SCORES. REGS has not gained popularity due to
complicated rules and the general downturn in the equity market. BSDA also has not

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 seen an increase in the number of demat accounts. Minimum allotment is encouraging
investors to apply in smaller amounts.

8.19 Views of Merchant Bankers

In view of major reforms that were introduced in 2012-13 by SEBI with the intention
to streamline the Issue process and invoke greater responsibility on the part of
Merchant Bankers, it is important to understand the perceptions of Merchant Bankers
and for that purpose a structured interview was conducted.

The findings of the interviews have been reported below

• Concerns of retail investors and their participation

The interaction with the Merchant Bankers revealed that the lack of retail
participation in IPOs is acknowledged by them. The major concern of retail investors
is with respect to their return on investment and uncertainty regarding allotment.
Merchant Bankers are of the opinion that the increase in the investment limit is a good
measure and investors are making use of it. The limit can be increased further if it
enables more retail investors to enter the market. With regards to the retail investor’s
participation in the Book Building process, majority of the bankers are of the opinion
that while nothing stops investors from participating in the Book Building process,
retail investors bid at cut off to be safe.

• IPO grading
Grading of IPOs is a unique to the Indian regulatory framework essentially intended
to guide retail investors. The Merchant bankers are of the opinion that grading alone
is not a parameter to judge the quality of the issues. However a higher rating does
influence the decision of the retail investors. More than the grade, retail investors seek
cues from the QIB participation.
• Introduction of Circuit Filter
Circuit filter has been put in place to curtail listing day volatility of IPOs. The
Merchant Bankers agree that it a good measure and experience of the IPOs that were
listed subsequently has shown a near elimination of the manipulators inflating the

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 prices and exiting the market. However as the IPO market has been inactive since, the
efficacy of circuit filter has yet to be tested over a long term perspective.
• Pricing of IPOs
Merchant Bankers role in the pricing of the Issue has been under focus in view of the
post listing performance of the IPOs and SEBI (ICDR) Regulations, 2009 now require
the Merchant Bankers to disclose the track record of the performance of IPOs
managed by them in the offer document. While most of the bankers were reluctant to
comment on the issue of pricing and whether SEBI should involve in the same, some
of them expressed that they have been educating their clients to take a realistic view
on pricing.
• Recent reforms
With respect to the recent reforms increasing the minimum size of retail application,
reducing the bidding period, on line IPO and compulsory allotment to retail investors,
There is a consensus among the Merchant Bankers that these reforms were much
needed to infuse life into the primary market. Reducing the time lines between the
closing of the issue and the listing will help tackle the grey market operations they
feel. The general perception of the Merchant Bankers is that while the reforms have
stream lined the issue process; the general economic conditions have to improve to
revive the IPO market. None of the Merchant Bankers interacted with were unwilling
to comment on the safety net mechanism.

• Suggestions

Educating investors is the key to protection as felt by the bankers.

8.20 Views of Experts:

Experts in the field of primary market were also consulted to analyze the efficacy of
the reforms in the primary market. The findings are reported below:

• Retail Investor concerns: Experts were of the view that the biggest concern is with
respect to pricing. Overpricing the issue leading to sharp fall post listing is the reason
for the general apathy of retail towards IPO.

Increase in Investment limit: Majority of the experts were of the opinion that there are
many investors who would not fit into the retail category but qualify as HNI who apply in

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retail for various reasons. With respect to the increase in the investment limit, the interaction
with the experts revealed that from an average size of retail application of 60-65,000 the
application size has increased to 1 lakh after the increase.

Experts were also of the view that the minimum mandatory allotment to retail investors while
it assures investors of allotment, the experience in the recent IPOs after this amendment has
been that issues oversubscribed marginally have seen more application of smaller amounts.
Hence this is encouraging investors to make smaller applications in view of confirmed
allotments.

IPO grading:

With regards to the efficacy of grading, experts are of the opinion that while grading is an
additional tool to assess an issue, as the grade does not take into consideration the price, it is
not effective.

Recent Reforms

Majority of the experts are of the opinion that the Circuit Filter has almost eliminated the first
day exit that manipulators used to ‘pump and dump’ the shares. It has now become difficult
for promoters to manipulate and exit on the listing day. ASBA has to be encouraged and then
made compulsory for retail investors, they feel.

The Electronic IPO according to experts in the long run will elicit more response from across
the country instead of the concentrated presence in the cities of Mumbai, Ahmadabad and
Rajkot. Some experts are of the view that the e-IPOs also address the issue of wastage of
resources through IPO application forms. As the average usage rate is less than 1% which
means almost 99 forms printed are wasted, the experts are of the view that e-IPOs is a much
needed reform.

Safety Net:

While the Merchant Bankers declined to comment on the safety net, majority of the experts
feel that providing a safety net will discipline the Issuer with respect to pricing and also
provide comfort to retail investors.

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8.21 Summary

The Survey has revealed that with respect to general investment attitude, lack of awareness
on the part of retail investors is leading to greater dependency on brokers. There seems to be
a strong preference for mutual funds. Chief concern remains price volatility and aggressive
pricing of IPOs. Listing gains remains a predominant reason for investing in IPO. IPOs have
become instruments for trading rather than investment.

Significant numbers of retail investors are not making use of the increase in the investment
limit. The findings of the interviews reveal that the HNI category is encroaching into retail
category and are the beneficiaries of the limit. While timely disclosures are the foundation of
market regulation by SEBI, it is disappointing to note that retail investors are not making use
of vital information. Preference for IPOs of PSU is evident. Greater shares in the IPO
allocations are demanded by majority investors.

While the perception that SEBI is an effective regulator appears to be strong, its role is in
enforcement and giving compensation to investors is perceived very poorly by retail
investors. While investor associations can be pioneers in the protection of investors, there is a
general apathy of investors towards investor associations. There is a lot to be desired form
investor awareness programmes with the major learning outcome being knowledge about
technical aspects of Demat account opening.

Brokers, Merchant Bankers and experts are positive of the reforms introduced in the primary
market especially e-IPOs and Circuit Filter. However with the meagre number of IPOs listed
since the reforms and the gradual withdrawal of retail investors from the market, the long
term efficacy of the reforms is yet to be tested.

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