Small investor gets a big voice

It wasn’t just SEBI which tweaked the rules in favour of retail investors; the Supreme Court and the RBI too did their bit.



When stock markets soar, investor activism often takes a back-seat. But 2012 proved to be an exception to this rule. Not just SEBI (Securities Exchange Board of India), but quite a few other voices spoke up for the retail investor.

Sahara soap opera

If an unlisted firm mops up crores from hordes of investors through unusual instruments without the blessings of SEBI or the benefit of a prospectus, can this be deemed a private affair?

This was the tangled legal question that was resolved when the Supreme Court backed SEBI in its battle with the Sahara Parivar. The Court ruled that the Sahara companies’ Rs 17,400 crore fund-raising did violate securities laws and asked them to refund the money to investors with interest, within three months.

While this was a big win for SEBI, getting the Sahara firms to actually cough up this money has been a task worthy of Hercules. First, the truckloads of documentation backing these ‘bonds’ was despatched late to the SEBI headquarters.

Then, Sahara claimed that it had already refunded money to many investors, thus shrinking its original dues of Rs 24,000 crore to a fifth of that amount. SEBI, which wasn’t amused, refused to accept this. But by the close of 2012, the happy ending still eluded Sahara investors, with the group winning more grace time to make the refunds.

True or false

Equity research firms are usually not known for their maverick views or racy writing style. But Canadian equity researcher Veritas broke this mould by writing a report in August called ‘Bilking India’, which attacked three listed firms from the IndiaBulls group for riding roughshod over investor interests. It alleged that these firms used complicated holding structures and related party transactions to benefit insiders at the cost of investors.

The IndiaBulls group launched a counter-offensive. It pointed out ‘factual inaccuracies’ in the report, accused the said analysts of extortion and even slapped one of them behind the bars. What the drama did flag was the risks to investors, when private entities, and not company auditors, blow the whistle on corporate shenanigans. But this saga proved pretty short-lived, with both the report and its allegations soon forgotten. By year-end, the IndiaBulls group stocks had gained anywhere between 12 and 33 per cent from their post-expose lows of August.

Primary make-over

If the stock market is no place for the naïve and unsuspecting, the new issue market is 50 shades greyer. This is where Indian investors have been sold the most lemons over the years. Terrible timing, avaricious pricing and even blatant siphoning of money made sure that the majority of Initial Public Offers (IPOs) delivered dismal returns to their initial investors.

Waking up to this, SEBI began cleaning up the system. First, it decreed that big guys could not have second thoughts once they bid in IPOs. It also asked merchant bankers to lay bare the ‘track record’ of past offers managed by them in the prospectus.

By October, SEBI made the final leap, taking on the onus of summarily rejecting an issue, if it violated certain criteria. Investors can now look forward to better quality IPOs. But after this brave move, will SEBI have the time to do anything beyond sifting through mountains of paper?

Keep it simple

One always thought that Reserve Bank of India (RBI) had nothing to do with laymen. After all, it has lofty functions like setting monetary policy and controlling foreign exchange transactions. But 2012 saw the RBI waking up to the fact that bank customers were getting a raw deal on many counts. Thus, it frowned upon teaser home loans which draw in borrowers with a fixed rate, only to later go ‘floating’.

It also began to lean hard on banks to stop penalising customers when they prepaid these loans. In November, it went the whole hog and put out a draft report asking banks to start launching some long-term fixed rate products.

It argued that banks, with their huge treasury departments and ability to dabble in swaps and futures, would surely be able to manage wild swings in interest rates better than the hapless home buyer. Hope the banks see reason in 2013!

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