India mulls pay-backs for investors burnt by IPOs

India's stock market regulator is considering a plan that would see small investors reimbursed if they lose money buying newly issued shares in a bid to boost confidence in IPOs, a report said Thursday. The Securities and Exchange Board of India is seeking to convince small investors to put money into initial public offerings (IPOs) after volatile flotations prompted suspicions of price manipulation, the Wall Street Journal said. "There was a feeling in this country that many IPOs are manipulated," U.K. Sinha, chairman of the board, was cited as saying. The lack of confidence in share flotations -- only a tiny minority of Indians currently put their savings into stocks -- means companies are deprived of a huge amount of potential funding for investments. The regulator has reportedly proposed a rule that would give refunds to investors who apply of up to 50,000 rupees ($920) after IPOs that fall sharply. The refund would be provided if the stock dropped more than 20 percent from its issue price within three months of listing, even if the broader market was steady or rising, the Journal said. In the case the broader market was also falling, investors would be able to apply for the refund if the stock lost 20 percentage points more than the market, it said. Company founders, or controlling shareholders, would have to buy the investors' shares back with their own money, without using company funds, it said. The regulator has yet to decide whether to make this proposal, first put forward in September, a rule and there is no timetable for a decision, the report said. Some IPOs in 2011 were seen as particularly suspicious, with shares making huge advances on their first day of trading before falling back. Traders were suspected of using a "pump-and-dump" technique, in which volumes would be pushed up to attract other investors and drive up share prices, the Journal said. The traders would then sell the stocks and prices would dive.