PEW calls for introduction of IPO grading system
IPO grading serves as a tool for additional information and assistance to investors enabling them to take proper decisions after getting realistic picture of a company.
This service is very useful to retail investors who seek to invest in companies that are little known or unknown in the equity markets, said Dr. Murtaza Mughal, President PEW.
A grade is not a recommendation to buy shares but only an independent, reliable and logical evaluation of the fundamentals of a company going in for an IPO, he said.
Dr. Murtaza Mughal said grading covers different aspects of the issuing company like management’s competence, marketing and other strategies, growth prospects, operating efficiency, financial flexibility, asset and accounting quality, and profitability.
It also covers situation of the economy, business environment for the company and risk factors which helps investors to make an independent judgment, he added.
He said that IPO market can get a boost if it is made mandatory for the companies to get a rating before public offering which must be disclosed to the regulator and the investors.
Protection of small investors can be ensured if the grading details are included in the company’s documents and in the advertisements; he said adding that all the documents should be open for inspection by potential investors before any IPO.
Dr. Murtaza Mughal said that Securities and Exchange Commission of Pakistan, one of the most important departments of the country, can initiate steps making grading obligatory for all the companies interested in getting approval for an IPO.
Such steps will restore confidence of the small investors in the stock market will give a boost to the economy.
Presently companies are left with no option but to opt for costly borrowing from the commercial banks which sometimes result in complications, he said.