The controversial Paytm IPO debacle has stunned trade, industry and market circles. It is crystal clear that a combination of profit-seeking investors (read, gamblers), greedy promoters and unscrupulous investment bankers has led to a severe crisis in the IPO market, which will require much time and effort to reverse.

Whether one likes it or not, the fact is that the IPO market has become a casino, a gambling den. The high-minded idea of growing an equity cult in the country seems to be in a state of slumber. Not genuine investors but only gamblers seem keenly interested in subscribing to IPOs. They wait for the allocation of shares as soon as the IPO is over, then immediately sell them and book profits. The question of investing for the long term is nowhere in their minds. Merchant bankers also play their games and IPO prices fluctuate widely. Surprisingly, market regulator SEBI does not bother to take exemplary action in such cases.

As far as the price of an IPO is concerned, one does not know on what basis SEBI permits the promotor and his merchant banker to fix an exorbitant price. The Paytm IPO, which was a debacle, was priced at Rs 2150 per share of the face value of Re one! Have you that a non-profit making company charging Rs. 2150 per price of Re. one!

This is a disastrous scenario for the new issue market and the process of capital formation as well as for industrial development of the country. Crafty merchant bankers, going along with greedy promoters, fix unbelievably high premiums. Then again, get-rich-quick investors, who are sure of merchant bankers jacking up post-IPO listing prices, rush to subscribe to these IPOs at irrationally high prices. Their calculations are vindicated when the IPO gets listed at a very high price and immediately offload their allotments for a neat profit. This is nothing but gambling, and far removed from the ideal scenario of investors picking up new stocks, enabling greater capital formation. Where then is the question of cultivating and promoting the equity cult in the country? In such a shambolic situation, it is the innocent and unaware investors who suffer financial losses and eventually lose trust and confidence in the stock market. This, in a nutshell, is the dangerously negative outcome of the entire IPO exercise!

The million-dollar questions are: Is SEBI not meant to protect the interests of genuine investors? Why should merchant bankers be allowed to fix ridiculously high premiums for IPOs? Earlier, there was an excellent system of pre-fixing an IPO price based on a certain formula devised by the Controller of Capital Issues (CCI). The price fixed for an IPO under this formula was logical, rational and served the interests of all – investors, promoters and the new issue market. CCI’s modern avatar SEBI has apparently reneged on its ethical responsibility of formulating a rational IPO pricing policy. Shockingly, the market regulator has not woken up to the rot within even after debacle follows debacle. Instead of enabling a favourable environment for spreading the equity cult and bringing more investors into the stock market, SEBI’s policies have actually driven away genuine investors by administering a body blow to their trust and confidence in the stock market.

SEBI was created to protect the interests of Indian investors, and its current policy of allowing a free hand to merchant bankers to fix IPO prices is not justifiable on any grounds. IPO prices should fixed on the basis of a rational pricing formula. If SEBI reverts to its foundational principles, it will have done a great service to the equity cult, the capital market and the industrial development of the country