Promoter holding in India is about 40 per cent, while retail investors hold about 25 per cent. Another way of looking at this data is that of the 60 per cent float in the market, upward of 40 per cent of which is held by the retail investor. The savings rate in India has been falling but is still between 22 and 25 per cent. Keeping this in mind, the Securities and Exchange Board of India (Sebi) has reserved 50 per cent of all initial public offers (IPOs) for retail and non-institutional investors. Of this, 35 per cent is reserved for retail investors who may invest up to Rs 2 lakh and 15 per cent for high net worth individuals (HNIs) who can invest above Rs 2 lakh.
The media, especially electronic, has made the serious business of investing look mediocre. There are programmes that give intraday calls for making money using the game of cricket as a comparison. For investors, the net result of following these programmes is, at best, neutral, if they are lucky, but mostly negative. Having lost money on a couple of occasions, the investor starts to believe the market place is full of cheaters and decides to stop investing. In addition, the regular guests are on the payroll of TV channels and make recommendations left, right and centre, with a standard disclaimer about their investment in the stock. Instead, the record of the expert should be made public and displayed by the channel, thereby giving investors an opportunity to invest on performance. When the track record of merchant bankers has become mandatory for IPOs, why not here as well?
The recent changes made by Sebi in the listing norms for IPOs have made life easier for investors. But the going has become difficult for those who manipulated prices through unimaginable volumes and volatility on Day One of listing, only to successfully dump the stock later. The new norms are excellent and have helped matters, so far. One would expect that Sebi announce a follow-up to the order issued in December 2011 about manipulations in IPOs, as it was an interim order.
A key area of concern is investors being lured to trade in derivatives without having the expertise or proper guidance. They follow ‘tips’, SMS or calls on television from people whose job it is to generate brokerage fees. I am not against brokerage or broking houses, but it is time we look at the larger picture of fostering investments and, hence, wealth creation by translating savings into investments. The government is also aware of the same and has introduced a tax saving Rajiv Gandhi Equity Scheme.
If the investor is to be protected, we need to review the consent mechanism on a war footing. The very idea of someone cheating the system and paying a token fine and being let off is simply not acceptable. The principle should be of disgorgement of the illegal gain, followed by a fine and then exemplary punishment. If the offence is repeated, the fine and punishment should be multiplied or raised to substantially higher levels. On the issues regarding corporate governance, offences by companies should be looked into earlier than is being done. Remedial measures and resolution of complaints should be undertaken in a time-bound manner. Exchanges need to be strictly monitored but need not be given the status of a first-line regulator. If any exchange is found conducting misdeeds as in the recent case of name change of client code, a proper penalty should be imposed.
The investor needs to be protected. Without him, there would neither be a market nor an exchange.
The writer is founder, KRIS Research