In order to control excessive speculation and volatility, which now characterize any stock on the first day of listing, the market regulator, Securities and Exchange Board of India (Sebi) has planned a 25% price band on the issue price (on IPO of Rs 250 cr in size). In this regard, The Analyst invited eminent experts like Aditya Agarwal, Jt. MD, ICRA Online Ltd., Nikunj Kapadia, Associate Professor of Finance, Isenberg School of Management, Peter Shea, CEO, Daniel Stewart & Company, Deven R Choksey, Managing Director, Kisan Ratilal Choksey Shares and Securities Pvt. Ltd. and Mukesh Kothari, Founder, Chittogarh.com to share their views on the topic and other related issues.

Aditya Agarwal: Imposition of a price band of 25% seems to be a move in the right direction. We have witnessed high volatility on the day of listing with prices rising astronomically, leaving the retail investor totally confused and flabbergasted. This rise in prices may not necessarily be supported by adequate volumes, pointing to manipulation by vested interests. The vibrant grey market has lured many investors into the primary market. Retail investors don't completely comprehend company valuations and invest based upon the grey market premium (unofficial trades) and the advice of the intermediaries with a hope to cash in on listing. This imposition of the price band should effectively address the volatility in newly listed stocks. It may not be a complete solution in itself, but would surely impart some sanity to expectations.

Imposing a price band of 25% will actually be beneficial for long-term investors and will also help Sebi to curb volatility due to market manipulations on listing day. Even though this is not the only way to avoid volatility and IPO share price may still rise/fall 25% each day, this is the best solution available at this time. Other solutions to stop share price manipulation on the listing day are more complicated and they may require changes to current IPO workflow. This approach carries few disadvantages of circuit shares. For example, suppose the market situation has changed for the worst and there are no buyers in the market for listed IPO stocks. The stock prices may still slip 25% every day before an investor actually gets a chance to exit from it. This chance will help the investor discover the share price gradually. This approach will also help to change the mindset of seeing IPO investment as quick return, which is among the major sources of price manipulation on listing day.

The Analyst Magazine, Curbing Volatility, Primary Market, Securities and Exchange Board of India, SEBI, Initial Public Offering, IPO, Secondary market, Institutional Investors, Global Stock Markets, Qualified Institutional Bidder, QIB, Auctioning System, Global Financial System, Mukesh Kothari Peter Shea.