|
Overview
For several years, SEBI has mandated increasing disclosure levels by companies seeking to access the capital markets for funding. However, these disclosures sometimes demand fairly high levels of analytical sophistication for a complete understanding; investors, particularly small ones, may not always possess such skills.
Also, in the interest of investor protection, regulators the world over have been seeking to improve the functioning of equity markets by introducing independent views and research into the equity market. Initiatives in this direction include the Spitzer settlement, and exchange-funded research. However, independent research that is structured as an investment recommendation (of the ‘buy/sell/hold' variety) has struggled for business viability in the presence of free research from brokers and investment banks.
Considering this scenario, SEBI in January 2006 introduced a grading system for Indian equity IPOs (http://www.sebi.gov.in/faq/ipograding.html). The objective was to encourage independent research into the equity market, capitalising on the high disclosure levels already prevalent. The grading was to be done by rating agencies, since rating agencies are independent of the issue-selling process, and their proficiency in analysis would give investors an expert opinion. To better understand the mechanics and utility of the IPO grading process, IPO gradings were assigned to 20 equity issues by three rating agencies in a pilot project in the second half of 2006. Taking on board the learning from this pilot exercise, SEBI made IPO grading mandatory in April 2007 for all issues where offer documents were filed with SEBI after April 2007.
CRISIL has played a central role in the conceptualization and development of the idea of IPO grading and believes that a grading provided by an independent entity would be a significant addition to the presently available tools for assessing the investment attractiveness of IPO offerings. The CRISIL IPO Grading includes an assessment of business and financial prospects, management quality and corporate governance; and reflects CRISIL's unique understanding of these issues, particularly corporate governance.
CRISIL IPO Gradings are assigned by CRISIL Equities. It deploys industry experts to assign the IPO Grading. CRISIL Equities works independently from CRISIL Ratings and do not share any confidential information provided to them by their respective clients.
|
