The Securities and Exchange Board of India (SEBI) has initiated an investigation into three initial public offerings (IPOs), suspecting that these companies artificially inflated the subscription numbers for their respective issues. SEBI Chairperson Madhabi Puri Buch confirmed this development during an event and mentioned that the market regulator is actively working on measures to curb such malpractices.
IPO subscriptions involve investors applying for shares of a company preparing to go public. As part of the IPO process, the issuing company offers its shares to the public for the first time, and interested investors subscribe to acquire a portion of these shares. During the subscription period, investors submit applications specifying the number of shares they want and the price they are willing to pay. The demand for shares is reflected in the subscription ratio, indicating how many times the IPO is oversubscribed. For instance, a 5:1 subscription ratio implies that the IPO received bids for five times the offered shares.
When companies intentionally inflate IPO subscriptions, they engage in deceptive practices that can have severe repercussions. This not only undermines investor trust but also invites regulatory scrutiny and potential legal consequences. If SEBI identifies any violations, it may impose fines and penalties on the company and its executives. Market consequences may include a decline in stock prices, potential delays, and lasting damage to the company's reputation.
Inflated IPOs not only harm initial investors but also raise concerns about the integrity and fairness of the broader financial ecosystem, highlighting the need for regulatory vigilance to maintain market credibility.
