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Online Personal Finance Magazine
No beating about the bush.
The quarterly survey across eight cities finds fall in confidence caused by poor global outlook, high domestic interest rates and inflationary concerns. Still, investors expect Sensex to climb to over 20,000 by year end
The Indian Investment Confidence Index (ICI) is at its lowest in two years, due to the combined impact of the global economic slowdown, high domestic interest rates and inflationary concerns, according to a survey conducted by JP Morgan Asset Management across eight cities in July. However, a majority of investors and advisors in India expect the benchmark Sensex to trade between 20,000 and 22,000 by the end of this year.
Interestingly, the retail confidence index although 4.2 points down from the previous quarter, ranked the highest (137.5). The advisor confidence index was a distant second (124.9), whereas corporate confidence was at the lowest (109).
Christopher Spelman, whole-time director and chief executive officer of JP Morgan Asset Management says, "ICI for the current wave has been impacted by a significant fall in the outlook on the global economy, domestic interest rate hikes and inflationary concerns. Despite this negative news flow, the Indian financial fraternity maintains a positive outlook with a majority of investors and advisors expecting the benchmark index to trade between 20,000 and 22,000 by the end of this year. Another interesting finding is that young investors (age 22 to 25 years) appear highly enthusiastic about investing in mutual funds."
ICI, which was launched in August 2009, captures the confidence of retail and corporate investors, and financial advisors on the Indian economic and investment environment on a quarterly basis.
The numbers were calculated on the basis of responses received from 1,623 respondents (retail), 50 corporate treasuries, 269 independent financial advisers (IFAs), 20 banks and 20 national/regional distributors (N/RDs).
Banking and financial services emerged as the most attractive sector for investment among retail investors and advisors. Investors appear to have turned cautious as preserving capital emerged as a popular strategy among 40% of retail investors surveyed. Further, just 40% of investors were likely to turn "somewhat aggressive" about their investment strategy in the coming six months, as compared with 57% in the previous quarter.
In corporate treasuries investment activity showed noticeable decline across all instruments. Money market mutual funds remained the most popular debt instrument. It is interesting to note that 50% of corporate treasuries expect to maintain the current investment level in liquid funds ahead of the Reserve Bank of India's regulation on limiting banks' exposure in liquid funds to 10% (effective from January 2012).
The survey found that IFAs (independent financial advisors) in Mumbai are a despondent lot and their confidence is the lowest this quarter. Easy to understand when one finds that personal networking continues to be the most preferred source of information for investment decision making among retail investors.
Arun Jethmalani, managing director of ValueNotes, the independent market research agency of JP Morgan that conducted the survey, says, "Growing vulnerability of the global economy and uncertainty in the domestic investment environment have taken a toll on investment confidence, dragging the ICI down to its lowest ever. Interestingly, confidence within India Inc. appears to be shaken the most, amidst rising inflationary pressure, poor governance and corruption; even as the advisor community is a little more optimistic about financial investments."
The ombudsman scheme for the capital market, approved and notified by SEBI eight years ago, has not been implemented by successive chairmen for mysterious reasons. Will the market regulator, under its new chairman, introduce the scheme at least now to safeguard the interest of investors?
One of the weakest areas in investor protection in the capital and securities market has been the poor grievance redressal mechanism. The 2009 Swaroop Committee report states that the investor population in our country has declined from 20 million in the 1990s to just over 8 million in 2009. One of the main reasons for this steep fall in the investor population can be attributed to the rampant malpractices observed in the capital market, the short-changing of investors at various levels, and the absence of any mechanism for expeditious and satisfactory disposal of investor complaints in a time-bound manner.
The Reserve Bank of India (RBI) had on 14 June 1995 introduced the banking ombudsman scheme, which has been functioning reasonably well under the guidance and supervision of the central bank. The banking ombudsman scheme has been revamped a few times since then, to provide a satisfactory complaints redressal forum for all customers of commercial banks, and it has resulted in a considerable improvement in customer services and a substantial expansion in banking services.
So, in early 2003, the proposal for an ombudsman for the securities and the capital market was discussed at a meeting of the Legal Advisory Committee constituted by the Securities and Exchange Board of India (SEBI). The Committee, headed by former chief justice of India MN Venkatachaliah, suggested the framing of the Ombudsman Regulations for the capital market, by SEBI, pursuant to its function under section II of the SEBI Act, 1992. Accordingly, a concept paper on an ombudsman for the securities market was prepared and a copy of the draft regulations was put up on the website of SEBI inviting comments from the public in May, 2003.
In all earnestness, taking into account the responses received from the public, SEBI notified the SEBI (Ombudsman) Regulations 2003 for the establishment of the Office of the Ombudsman to redress the grievances of investors in the securities and capital market. (Notification number SO 953(E), dated 21 August 2003.) This was followed by two amendments to the regulations, the first one on 5 December 2003 and a second on 9 November 2006. (Source: SEBI website)
It is said that 'mysterious are the ways of God'. In our context, we could adapt that to say, 'mysterious are the ways of SEBI', for nothing appears to have been done in the past eight years either to appoint an ombudsman, or to set up the office of ombudsman to implement the August 2003 notification issued by the regulatory body itself. Surprisingly the whole scheme has been put in cold storage by the successive chairmen for unknown reasons, while investors continue to suffer at the hands of unscrupulous players in the capital market.
There are numerous examples of how even reputed companies flout rules and regulations with impunity, and SEBI has been able to do precious little to protect the hapless investors. An extreme case of failure to honour the commitments made at the time of the public issue is that of ONGC, a Maharatna company in the public sector, who has not settled the claims of investors arising out of its maiden public issue of 2004, as is evidenced by their own admission in the quarterly results published by them for the last seven years. (Read 'ONGC's mockery of investor services'.) SEBI has been a mute spectator to this, and the company is ready to launch its follow-on public offer shortly.
It is gathered from the statistics published on the SEBI website that during the past 20 years of the existence of SEBI, from 1990 to 2010, more than 27.06 lakh complaints were received by the regulator and 25.46 lakh of these complaints have been resolved, with about 1.6 lakh complaints unresolved. This is an average of over 135,000 complaints a year and an average of over 500 complaints received by SEBI each working day. With the steep fall in the investor population, the number of complaints too has come down during the past few years. Nevertheless, these statistics certainly justify the need for a strong and efficient grievance redressal machinery in the interest of developing the capital market along healthy lines.
SEBI should now conduct a thorough investigation into this matter and answer the following questions to restore the confidence of investors in the capital market and trust in the institution of the market regulator itself.
1. What is the reason for not implementing the ombudsman scheme in the capital market for the last eight years, even though it was duly notified in 2003?
2. Who is responsible for such callousness in not implementing the scheme that was already notified by SEBI?
3. Is the notification and amendments that were issued still valid, and if so can the ombudsman scheme be introduced now without any further delay?
4. How can SEBI prevent such things from happening in the future, as such inaction undermines the credibility of the regulatory body which is expected to set an example of good corporate governance?
5. Can investors whose complaints have not been settled to their full satisfaction during these past eight years, be permitted to refer their complaints to the ombudsman now, in order that they get a fair deal?
Apart from serving the needs of investors, the biggest advantage of setting up an independent ombudsman is that SEBI, which has enough on its plate, would be relieved from this onerous responsibility and could devote more time and attention to other critical issues that affect the capital market. Therefore, SEBI, in its own enlightened self-interest, should set up the office of the ombudsman without any further delay and create an environment of justice and fair play for the benefit of aggrieved investors in our country.
(The author is a banking and financial consultant. He writes for Moneylife under the pen name 'Gurpur'.)
Funds were allocated to Investor Helpline and www.watchoutinvestor.com from the Investor Education and Protection Fund, which was created from unclaimed dividends and interest amounts from companies. Instead, a bulk of the funds has been going to associations of industries, many of which are responsible for investors’ problems
In a shocking move, the Investor Education and Protection Fund (IEPF), administered by the Ministry of Corporate Affairs (MCA) has terminated financial support to two projects, www.investorhelpline.in and www.watchoutinvestor.com, without giving any reason. Both projects benefited investors directly. Besides, the Fund itself has been created from dividends and interest amounts not claimed by investors.
What is all the more shocking is that IEPF now seems to fund industry associations, such as the Confederation of Indian Industry (CII), the Federation of Indian Chambers of Commerce and Industry (FICCI), Associated Chambers of Commerce and Industry of India (Assocham). Representatives of these bodies have also been inducted into the IEPF group of administrators and to help decide who gets the unclaimed funds transferred to IEPF by companies.
Investor Helpline (www.investorhelpline.in) was launched in 2006 as an alternative grievance redressal mechanism, while www.watchoutinvestor.com is a database on the regulatory actions taken by a slew of regulatory agencies against companies and market intermediaries, and corporate decisions to change their name or objects. Both websites were previously given financial aid by the IEPF.
IEPF was created by an amendment to the Companies Act, which requires companies to transfer seven years of unclaimed dividends and interest to the Fund. Matured deposits and debentures of companies were also credited to this fund. It also receives grants and donations from central and various state governments. Over Rs400 crore has been credited to the IEPF since its inception. The funds are first transferred to the Consolidated Fund of India from where it is allocated to the Investor Fund.
Interestingly, the ministry had early this year asked for a proposal to enlarge the scope of the Investor Helpline project for allocation of funds beyond the term of the project which expired on 30 June 2011. But, in a letter dated 6 July 2011, MCA declined giving funds it received through IEPF.
Moreover, the previous minister of corporate affairs Salman Khurshid had acknowledged the role of Investor Helpline in response to a question in parliament. He said, "The investor grievances redressal mechanism at the website www.investorhelpline.in is also serving as a useful electronic platform for the investors."
Virendra Jain, president, Midas Touch Investors Association, which set up and operated Investor Helpline, was apparently told by the ministry that financial support was being terminated because the grievance redressal mechanism of the ministry was already doing a competent job.
Mr Jain contests the claim. He said MCA's track record of solving investors' grievances is poor. Giving his own experience, he said that around 2,000 investor complaints were forwarded by Investor Helpline to the respective regional directors and registrars of companies, but they received acknowledgment for less than 15% of the complaints.
While Investor Helpline and Watchoutinvestor have appealed to IEPF and the MCA to continue the financial support, the composition of the Fund board and the manner in which it spends its resources has erupted into a contentious issue. It is not clear why IEPF administrators are almost entirely from lobbying associations of industry or intermediaries such as chartered accountants and company secretaries, as well as representatives of stock exchanges. It is also very strange that MCA does not think it necessary to appoint even one representative of investors on the committee.