Civil services Current affairs - Ramanujan Prize

SEBI

Context:

  • The stock market regulator, SEBI is trying to improve the disclosures made by new age technology companies approaching the primary market for listing.

Issues:

  • The digital companies tend to give precedence to growth over profitability and, therefore, are mostly loss-making when they approach primary markets.
  • Traditional accounting ratios mandated to be disclosed by the SEBIโ€™s ICDR Regulations under โ€œbasis for issue priceโ€ such as earnings per share, price to earning ratio and return on net worth of the company are not applicable to these loss-making companies and do not help investors in their decision-making process.
  • The shares of many recently listed new-age tech firms crashed heavily during the stock market correction.
  • Investors who picked up the Zomato, Nykaa and Paytm (One97 Communications) IPOs suffered heavy losses as their shares collapsed.
  • Investors blame irrational valuations for these losses and SEBI seeks to tighten IPO-pricing rules for new-age technology companies.

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New Rules:

  • SEBI will set up a mechanism for transparent IPO pricing of new-age firms.
  • After SEBI approves these proposals, it will ask new-age companies to justify how they arrived at the pricing of their issue.
  • SEBI observed that many companies filing their offer documents for IPOs under ICDR Regulations do not have a track record of profits for at least three years.
  • Many of these are new-age tech firms, and SEBI wants non-traditional information such as trends in Key Performance Indicators in the past to justify future profitability.
  • Moreover, SEBI seeks information on the companyโ€™s past fundraising rounds, disclosure of all presentations made to investors before the IPO, and compare share sales before the IPO.

Source: THE HINDU.

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