SEBI To Fortify Disclosure Norms For Indian Startups’ IPO

SUMMARY

SEBI is looking to discuss certain insider trading regulations and key performance indicators (KPIs) that should be added for investor consideration

The market regulator will look for detailed disclosures on IPO pricing, pre-IPO sales, and private investors

The detailing of how these KPIs will contribute to the company will help investors make informed decisions

The Securities and Exchange Board of India (SEBI) is looking to strengthen IPO disclosure norms of Indian startups. According to a Business Standard report, the SEBI board will meet on September 30, 2022, to discuss certain insider trading regulations and key performance indicators (KPIs) that should be added for investor consideration.

The report added, quoting sources, that the market regulator will look for detailed disclosures on IPO pricing, pre-IPO sales, and private investors. It would also reportedly bring mutual funds under the ‘securities’ disclosure norms.

The regulator is trying to address these norms since most of the new-age companies are loss-making entities and the traditional metrics do not apply to them. For instance, price-to-earnings, earnings per share, and return ratios are certain figures that these companies cannot provide to their investors via the DRHP and it becomes impossible to judge the health of the company.

New-age tech startups continue to make losses for a long time because even they (and their investors) understand that long-term growth is better than short-term profit. So, the rules and regulations that apply to big corporations cannot be applied to these startups, experts have previously told Inc42.

Thus, SEBI is looking to add supplementary information parameters and KPIs, to augment the startups’ prospectus. The detailing of how these KPIs will contribute to the company will help investors make informed decisions.

Previously, Inc42 has reported SEBI’s plans on making new disclosure norms amid the Indian startups’ shares on the public bourses. Stocks of Zomato, Paytm, Nykaa, CarTrade, Policybazaar and many more have invited scrutiny and SEBI has been criticised for equating these loss-making companies with large IPOs of profitable legacy companies.

With startups such as Snapdeal, boAt, Flipkart, Ecom Express, OYO, BYJU’S, FirstCry, Pepperfry, and more planning to go public, the crashes of their predecessors have triggered a need for detailed disclosure and transparency, especially when the private market price of the share is significantly less than the price offered to the public.