Eventually, after all the confetti and applications had settled, Maruti Udyog's 72,243,300-share initial public offer (IPO) for a quarter of its equity was oversubscribed not nine, not 10, but 13 times. The long-dozing primary market has not just stirred, it has jolted itself up. Retail participation is back, and with a bang. Excellent.

But what, other than that, are the lessons?

When people start asking their neighbours over their garden fences if they're applying for the shares, an IPO is certain to be a resounding success. So that's one lesson: the power of good IPO marketing. The Maruti IPO was heavily publicised in print and on TV, and then distributed through a vast network of 700 centres across 70 cities.

The other lesson, as apparently absorbed by SEBI, is less obvious than the first one. The Maruti IPO took the 'book building' route, which employs a form of auction, the express purpose of which is to prevent IPOs from turning into blind roulette-luck games (as they were in the inglorious days of CCI-controlled issue pricing). This is a good method. Applicants bid for shares at, or above, the pre-declared floor price-Rs 115 per share in Maruti's case. As it turned out, most applicants put in bids for the car-maker's shares at Rs 120-125. And so it is that the shares are now being allotted at Rs 125 each, in a ratio of 60:25:15 to institutions, small retail investors and high net worth individuals, respectively.

You can attribute the fact that most retail bids were no more than Rs 10 above the floor price to investor psychology, since the floor is popularly assumed to be the 'fair value' price. You can also assume that the institutions ran their own valuation methodologies to arrive at similar bids. But the very purpose of an auction is to let the price get bid higher and higher as demand swells and competition for allotment intensifies. That most bids remained at around Rs 125 is rather strange-given the final oversubscription.

But then again, perhaps the fraction of shares reserved for retail investors was not large enough for the competition to be very intense. This is why the recent move by SEBI to raise the quota for small investors from 25 to 35 per cent and reduce that of institutions from 60 to 50 per cent, makes eminent sense. If institutions cannot claim a majority of the shares to be issued, other applicants get empowered as participants in the competition to bid the average (modal) price up.

Simultaneously, SEBI has also redefined 'small retail investor' from someone applying for no more than 1,000 shares (whatever the price) to someone investing no more than Rs 50,000 (whatever the number of shares). This should prevent high net worth players from masquerading as small investors, thus freeing up even more shares for the category of 'small retail investors'. This could boost competition, for this is the category with the largest number of discrete bidders, the sort who do not even know what their neighbours are bidding.

Another laudable step is to reduce the listing gap from 15 to six days from the date of issue closure. The price at which a share makes its debut is always watched closely, and the closer this debut happens to the date of the last noted price (the date of the closure), the easier it is to make comparisons. Of course, this is complicated by the fact that the promoters and underwriters have a 'greenshoe' option, by which any sudden fall or rise in the post-listing market price can be moderated by the exercising of this mechanism (which alters the number of shares listed).

Nonetheless, SEBI has done its bit to enhance the efficiency of the IPO mechanism currently in vogue. Perhaps the fraction mandated for institutional allotment could be lowered even further (from 50 per cent), but that would require a mass revival of the equity cult. Could that happen? Yes, if secondary market sentiment stays buoyant, which, in turn, depends on the government's disinvestment programme. A good start has been made by the Maruti ipo, and the government must ensure that the momentum is not lost.