What To Do in Market Turmoil
Market corrections of 10%-15% are common. But investors’ memory is short
 
“Stay the course. This is not the time to panic. The conditions that create a major market crash are not evident at this time,” said Debashis Basu, trustee of Moneylife Foundation. He was addressing Moneylife Foundation members at a session on “Markets in Turmoil: What Should You Do Now” in Mumbai. The markets have been struggling for over nine months now, having come off about 15% from the peak reached in March 2015. Many sectors, such as realty, infrastructure and metals, are down 30% or more in the past six months. The decline is due to multiple global factors, combined with poor earnings growth and high market valuation.
 
Mr Basu pointed out that after Narendra Modi became the prime minister in May 2014, the markets rose mainly on expectations of better prospects for businesses. The Sensex shot up from 22,000 in April-end 2014 to over 30,000 in March 2015. Those who had invested at the beginning of 2015 will be staring at a significant decline in their portfolio value. This has, naturally, given rise to anxiety among investors, especially since global markets are also in turmoil. The Chinese economy is expected to slow down significantly and markets in the United States (US) have corrected sharply fearing interest rate increase by the US Federal Reserve. However, the Fed has not changed interest rates, for now.
 
Mr Basu provided a perspective to the correction. He explained that every time there is a sharp sell-off in the market, investors tend to worry because the human mind is gripped by losses and declines and fear of further losses which dominate the headlines. “We forget that such declines are fairly common in stock markets. However, most of these occasions are forgotten when the market rallies.” Mr Basu brought these instances back to memory and showed how a 10%-15% correction is not necessarily the start of a bear market.
 
“Severe bear markets have certain characteristics, such as extremely high valuations, a flurry of fund-raising activity, sharp increase of penny stocks, new themes and overwhelming retail participation. These characteristics are missing in the current decline,” he added. This does not mean that one can buy stocks fearlessly and the market will head higher. “We have been arguing that the market has been overvalued since late-September early-October 2014; one has to be highly careful about choosing the right stocks.” Mr Basu suggested that this is not so difficult, if one tunes out the noise and sticks simply to buying stocks that make high return on capital and are fairly valued. 

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Big Fines by SEBI, But No Funds
Is there a point to the huge fines being announced by the regulator?
 
On 22nd September, the capital market regulator set a record by levying the biggest ever penalty—of Rs7,269.5 crore—on PACL Ltd (formerly Pearl Agrotech Corporation Limited) and its four directors for illegal and fraudulent mobilisation of funds from the public. 
 
Does this large amount serve any meaningful purpose? Remember, PACL has raised an astonishing Rs49,000 crore from the public, over a 15-year period, that must be repaid first. Many nervous investors have posted queries on Moneylife’s website about the process to get back their money. Unlike the strangely silent investors of the Sahara group, PACL appears to have genuine investors who were lured with the promise of high returns and investment in land. 
 
While SEBI is correct in saying that a strong signal should be sent to those who indulge in ‘illegal money mobilisation’ to dupe the common man, the regulator’s priorities ought to be different. The preamble to the SEBI Act makes it clear that investor protection is its first duty. The regulator ought to focus on putting in place a simple mechanism to ensure that genuine investors get back their hard-earned money and then worry about imposing a stiff penalty to act as a deterrent. 
 
The bigger problem in PACL, Sahara and the many large money circulation schemes that SEBI has correctly cracked down on (Rose Valley, MPS Greenery and Alchemist) is their long misuse of legal processes with investors’ funds. The real deterrence against such illegal schemes would be swift legal action that prevents the misuse of courts. Unfortunately, the setting up an independent market regulator and a securities appellate tribunal (SAT) has only created two more forums to abuse through pointless legal processes and delays. PACL is the best example of this. It obtained a stay against SEBI action from various courts, allowing it to raise another Rs25,000 crore, over the years.
 
Are PACL or its promoters in a position to pay SEBI’s steep penalty in 45 days after repaying investors? Should SEBI be focused on collecting penalties instead of insisting on investors getting back their money first? SEBI’s recovery action will be contested, but may ultimately land the promoters in the same predicament as Subrata Roy (of the Sahara group) who has been languishing in jail for well over a year. A SEBI order asking Ramalinga Raju and his family (of Satyam Computers) to return Rs1,850 crore of unlawful gains and cough up interest to the tune of Rs1,500 crore has already been stayed by SAT on 8th September. The legal battle will continue and, eventually, land up in the Supreme Court. The only ones benefiting from this pointless system are members of the legal community whose fees have been galloping every year. 

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COMMENTS

Meghanad Ingale

11 months ago

All said and done, does anybody have idea whether PACL's assets are worth the claims by investors?
If SEBI decides to liquidate, how long will it take, 1 year? 2 years? 10years??

Arvind

1 year ago

Reminded of CRB Capital Market scam.
Finally, earlier this year, SEBI constituted special committee is finally disbursing money.
But, holders have such onerous process & requirements of documents, KYC etc forced on them to recover a pittance of original investment.
Justice delayed and justice denied.
This is my India!

Benny Stephan

1 year ago

I was recently reported of death of 2 customer's of Pacl India Limited.
Incident No 1 below:
One man commits suicide in Kerala.
Incident No 2 below:
A daughter dies in Ongole as pacl fails to refund the returns leaving the father in depression.
My heartfelt condolences to these family.
I even heard that some agents of pacl were beaten up and also women working as agents for pacl in Kerala are being sexually harrassed for not being able to refund the returns of the customers.
There are so many incidents of pacl that are not reported yet after such hideous crime in India.

Benny Stephan

1 year ago

If you ask anybody in India, they will tell you that the legal proceedings are very slow in India.

Lets be honest, Be it Sebi, Sat, Cbi, Ccb or local police of India, if not everybody but I am sure some people gets to know about these business and their schemes. Does anybody think that our local police doesn't get to know what is happening, If 5.89 crore people knew....then everybody knew including High court and Supreme court but why are the customer's the only one to suffer. I blame both Supreme court and High court for waisting 15 years to ruin the life of people. I even read that nobody has lost their life which is not true. I recently was reported of 2 deaths due to not receiving the returns on time. One death wad reported from Ongole amd another from Kerala...There must be so many incidents such as these which are not reported yet. I even read that the agents of pacl mostly women from kerala are being sexually harrased. If all that I have heard is true then really the courts, law, Sebi, Sat, Pacl you all have brought shame to human kind.
We are human and not machines, so help human's and this will help to improve the system.

Benny Stephan

1 year ago

If you ask anybody in India, they will tell you that the legal proceedings are very slow in India.

Lets be honest, Be it Sebi, Sat, Cbi, Ccb or local police of India, if not everybody but I am sure some people gets to know about these business and their schemes. Does anybody think that our local police doesn't get to know what is happening, If 5.89 crore people knew....then everybody knew including High court and Supreme court but why are the customer's the only one to suffer. I blame both Supreme court and High court for waisting 15 years to ruin the life of people. I even read that nobody has lost their life which is not true. I recently was reported of 2 deaths due to not receiving the returns on time. One death wad reported from Ongole amd another from Kerala...There must be so many incidents such as these which are not reported yet. I even read that the agents of pacl mostly women from kerala are being sexually harrased. If all that I have heard is true then really the courts, law, Sebi, Sat, Pacl you all have brought shame to human kind.
We are human and not machines, so help human's and this will help to improve the system.

Ravindra

1 year ago

There are two things which can be more effective.
1 The Regulator must be able to direct the confiscation of the Funds of the Company as well as the Assets of all kinds of ALL Directors of the Company. Obviously present Law does not provide for it. Law needs to be improved.
2 These schemes are operating in the open market and there needs to be a suo-moto vigilant set up to bring such schemes to the notice of SEBI (?) so that it can be stopped in its track. It is ridiculous to find that PACL was operating for 15(Fifteen) years and collected 49000 crores over that period. It was able to get the stay orders from several courts, which possibly means that there is either no Law for such schemes. Courts' job is to interprete the law, not make the law. Hence barring few cases of Corruption, by and large it looks like the Courts are not to be blamed.

Benny Stephan

1 year ago

I have invested my life time savings in Pacl India Limited which I have paid for 6 consecutive years. In August, 2014 Sebi ordered Pacl to refund the returns to the customers within 3 months which was November, 2014 but Pacl approached Sat and appealed against the order from Sebi. In August, 2015 Sat also ordered Pacl to refund the returns within 3 months which is November 2015 and also ordered pacl to close its business operation in 15 days from the date of order. This order was released on August 12, 2015. I have contacted Pacl India Limited 2 days back but I was informed that Pacl cannot start the refund procedure yet as their bank accounts are still freezed by CBI inspite the order from Sebi and Sat to refund the returns within 3 months. I contacted CBI Delhi and I was informed that the case is still ongoing and the bank accounts will be released only once the case is closed. I also read in the news that Sebi has fined Pacl a huge fine of Rs7000 crore which is 3 times of the profit earned by Pacl over 15 years. I am not sure whether imposing such a huge fine of Rs7000 crore would do any good to the customers. I am worried if pacl can refund the promised returns to the customers after Sebi has imposed such a huge fine. I even read CCB raids the Branch of Pacl and found documents worth 103 crore which were not submitted by Pacl. This is hard earned money and life time savings of people who may be either rich or poor, but the case against Pacl has been there for more than 15 years. An official of pacl also told me 2 days back that they did approach Supreme court requesting to extend its business operation for another few years, but this appeal is declined by Supreme Court, however the truth is unknown. Pacl is now telling us that it has a hearing on November 05, 2015 in the high court to release the bank accounts of Pacl, but this is not confirmed by anybody yet. If Sebi, Sat, Cbi,Ccb, Pacl or be it any other regulatory body out in India...If you have even thought of fooling the investors evem for a while....Think again...This money belongs to the people who have invested their hard earned money of their lifetime savings. If Sebi didn't have the power to make things right 15 years back, I feel that Sebi still haven't earned the respect from people in India because they are not interested in completing the refund procedure for the people but they sure are interested in a huge fine of Rs7000 crore which will not help the customer's in getting back the promised returns as mentioned in the agreement. I think all the regulatory body in India is aware of any business that starts in our country. If a common man like me today gets to know that there is a new company like Proficient Tech marketing which was launched in May 2015 running exactly a similar business operation like pacl but I guess Sebi wants to wait for these companies to collect those 100 crore again and then say that these schemes are not CIS and this company and their policy is not registered by Sebi and by the time many customers like us in trapped and then finally one Sebi comes and takes everything away from people.
We are not letting Sebi take anything away from us this time. Its our money and we will take everything we deserve and If needed we will ensure that there is No Sebi, No Sat, No Cbi, No Ccb in India.

Dipakkumar J Shah

1 year ago

This remind me a case of prospectus issued by Ratnamani Engineering Limited well back in 1994 . SEBI vetted the same. Wherein a mere book entry of profit was allowed , it was a case of Dividend paid out of capital , mere book entry of profit , out of only this mere book entry of profit Rs 30.01 Lacs dividend was paid and declared ?? There was an entry of Rs 40 Lacs in prospectus as Job Charges!!! In fact ther is a loss of Rs 9.09 Lacs !!!! For what best known to Mr Prakash Sanghavi?? You may refer to the Judgment in the case of Company Petition No 17 of 1996 of Gujarat High Court . You may find online. See how is wealthy and healthy Judiciaries and Judicial People. Just some 15 days Bank Hon. Chief Justice Mr. Mohit S Shah Retired from Bombay High Court gave verdict.

Vaibhav Dhoka

1 year ago

SEBI never intended to safeguard investor's interest.It never stood to its Preamble as defined.This penalty is best example to show that SEBI is working and is useful for SEBI's work audit.In India multiple forums have played havoc and helps fraudster only to achieve their goal.One should pity Indian investor.Indian regulators are only Bol-Bachans.

Meenal Mamdani

1 year ago

Ms. Dalal is spot on, as always.

The onus is on the govt of India that allows such frauds to be perpetrated because of lax oversight by SEBI and atrociously slow justice by SAT - both institutions set up by the govt.

If Mr. Modi wants more investment to flow in from other countries, he has to overhaul the legal procedures that are cumbersome and dilatory.

Dipakkumar J Shah

1 year ago

Such persons are habituated. They should be sebt to Jail.This reminds me a case of M S SHoes , And Padmini Polymers Limited public issue. M S Shoes Limited . Pavan Sachdeva was sent to Jail. Padmini Polymers Limited , the same modus operandi played by the Directors, No harm to the Directors of Padmini Polymers Limited!!! This is our Shabby SEBI!!!

Anil Agashe

1 year ago

Why does SEBI sleep all the years when funds are being collected. They act too late and hardly recover the fines that they impose.

Deepak R Khemani

1 year ago

I remember one lady CFO of a Co. who received an award of Best CFO during an award function saying that laws in India are designed to make the lawyers rich!

Ganesh Johnson

1 year ago

Hi, Mr. Modi's real hard work lies ahead in getting rid of the "hidden" unfair advantages available to large corporates. The biggest one is the use of our judicial system. As mentioned in the article, the Judicial process is actually used as a business strategy advantage by many companies to delay certain decisions, to harass competitors and the government, and to generally use their army of lawyers to their business advantage purely by making a play on our inefficient judicial system. Why else would the lawyer tribe gain so much money and fame? I mean, what is the contribution of lawyers to this country's economy?

A S Bhat

1 year ago

lawyers make money while no one else gains. the unsuspecting investors who were lured into such investments are the sufferers who should have been protected in time.
I totally agree with the views expressed in this article.

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