Stock Tips Continue Despite New SEBI Rules

A stock that will return 200% in 12 months? Stocks tips continue unabated despite SEBI’s rules to curb them. The rule will end up harassing genuine analysts it seems.


An email sent from an anonymous email ID suggests that the receiver buy “Prozone Intu Properties” or PIP. The email tries to lure the reader by saying, “the stock is trading at a market-cap of Rs250 crore and is a screaming buy for the target of Rs60 in next 12 months.” Priced at around Rs20 (when we received the email last week), the email suggests that the stock can go up by three times or 200% in 12 months. This is just one such email. There are many such emails, phone messages, etc. that do the rounds. They make misrepresentations, unrealistic claims, and peddle false tips as fact. Stock tips continue unabated despite the market regulator—the Securities and Exchange Board of India (SEBI), coming out with rules and regulations to curb the same, such as the recent Investment Advisors Regulation.


While honest advisors are burdened to comply with the rules set by SEBI, those who offer such anonymous stock tips are able to go scot free without severe punishment. The thought of being barred from the capital market will not worry them, as they would still be able to continue their business of trade or offering advice through different identities or using several benami accounts.


Take this recent case for example. In August 2013, SEBI cracked the whip on certain entities who were offering trading tips through SMS and WhatsApp. According to SEBI, the entities were prima facie acting as investment advisors without necessary regulatory approvals and it ordered that they be barred from “dealing in the securities market, either directly or indirectly”. The persons involved were Imtiyaz Hanif Khanda and Vali Mamad Habib.


In less than a year, on 5 June 2014, a similar case came to light, involving stock trading tips being offered through SMS and WhatsApp. Here the persons involved seemed related to those above—Mansoor Rafiq Khanda and Firoz Rafiq Khanda. While the regulator notes that “the modus operandi as well as names of the operators in the instant case are similar,” it may spend another few months in investigations “to find out a connection, if any, between the entities.”


Instead of taking strict action or levying a hefty fine against the persons involved, SEBI let them off by just barring them from the capital market and asking them to cease and desist from acting as an investment advisors and withdraw all advertisements, representations, etc. in relation to their investment advisory and portfolio management activities. This may not be enough.


The investors were being promised 200% assured returns on deposit payments of Rs25,000, along with promises of trading tips. The messages also promised monthly gains of Rs25-50 lakh. What happens to the money of those investors who put in their hard-earned money seeking higher returns? SEBI has chosen to keep mum. However, at the end of the order the market regulator does “take this opportunity to caution investors to take their informed investment decisions without being influenced by such messages and advices and to deal with only intermediaries registered with SEBI.” Is the regulator indirectly saying that they are powerless in curbing such malpractices?


The exchanges too have begun cautioning investors. Below is a message published on the BSE website cautioning investors against SMS tips.


But investors have to be cautious anyhow, what is the use of new regulations? From October 2013, only those who had registered under the regulation with SEBI would be able to offer investment advisory services. However, we can see that this has had no effect.


Moneylife had earlier pointed out, that with the new Regulations from SEBI, the tribe of honest investment advisors will hardly grow in India, as there is too much of responsibility with limited freedom. (Read— Investment advisors to become rare species, thanks to SEBI Regulation) The cost is a big de-motivating factor and compliance requirements are onerous. In short, dishonest SMS or email stock tips to continue, while investors will have fewer avenues to receive good and honest advice, thanks to “regulations” that precisely hope to achieve the opposite.

  • Like this story? Get our top stories by email.




    6 years ago

    A dumbo article.
    It already touched 37, people made money, who is right?

    Cabinet approves mining ordinance

    The Union Cabinet approved the eighth ordinance in the government's seven months


    The Cabinet has approved yet another ordinance, this time regarding the sale of iron ore and mineral resources blocks through the auction route.
    This ordinance would amend the existing Mining and Minerals Development Regulation Act. A draft of the Mines and Minerals (Development and Regulation) (Amendment) Act, 2014 had been circulated by the Ministry in December.
    Facing an opposition that would not let the Rajya Sabha function, the government was unable to discuss the bill in the Rajya Sabha where it does not have majority.
    Secretary General of industry body FIMI, RK Sharma was quoted by reports as saying, “The auction route on the basis of mineralisation instead of fully-explored resources, as recommended by the Hoda Committee, will lead to distortion of the whole process with serious consequences to the government and the buyer. Given the wild fluctuations in global prices, auction will also be viewed with suspicion and be labelled a scam like 2G and coal.”
  • User 

    SEBI widens the scope of investment by Foreign Venture Capital Investors

    With this amendment, the bottleneck for investment in the infrastructure sector through the FVCIs route has been removed


    As per an amendment to its regulations, the Securities and Exchange Board of India (SEBI) has substituted the definition of “Venture Capital Undertaking.” 
    According to the definition stated in Regulation 2(m) of the Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000, “Venture Capital Undertaking” meant a domestic company, not having its shares listed on any recognised stock exchange in India; engaged in the business of providing services, production or manufacture of articles or things, with central government’s approval by notification in the Official Gazette. It excluded the activities or sectors of the negative list, mentioned hereunder:
    Non-Banking Financial Companies (NBFCs) [Except those registered with the Reserve Bank of India and categorised as Equipment Leasing or Hire Purchase Companies].
    Gold financing (Except the companies engaged in gold financing for jewellery).
    Activities that have been disallowed under the industrial policy of Government of India.
    Any other activity specified by the Securities and Exchange Board of India (SEBI) in consultation with the Government of India.
    With the new amendment dated 30 December 2014, the new definition encompasses Core Investment Companies (CICs) in the infrastructure sector, Asset Finance Companies (AFCs) and Infrastructure Finance Companies (IFCs) through the Foreign Venture Capital Investors (FVCIs) route, which were excluded before. 
    Leasing as a proportion of total asset finance is negligible. The inclusion of NBFCs categorised as Equipment Leasing or Hire Purchase Companies did not hold much significance practically because they were unpopular concepts, contributing a meagre share to the total asset finance. The previous regulations were at loggerheads with the practical scenario.
    In most infrastructure projects, funding is through Special Purpose Vehicles (SPVs) which are basically CICs. Thus, representations were made by the relevant sectors and SEBI also proposed that the FVCI Regulations be suitably modified to replace Equipment Leasing and Hire Purchase Companies with AFCs and IFCs as the latter entail broader concepts which are indispensable to align the Regulations with reality.
    The benefits of the amendment:
    With this amendment, the bottleneck for investment in the infrastructure sector through the FVCIs route has been removed. It will boost the infrastructure sector of our economy through the injection of funds from overseas. As India is a developing economy, it will give a positive impetus to the economy.
    A possible new wave of foreign capital:
    Since the advent of liberalisation, foreign investments have been the backbone of the Indian economy. The financial crisis in the global markets and consistently volatile markets made the outlook of the Indian economy grim. This Amendment might be the magic wand to pull India out of the economic slump and ensure development of the country by infusing funds into the infrastructure sector. It also has positive spill-over effects over various other sectors and the entire economy.

    (Neha Somani works with Vinod Kothari and Company)


  • Like this story? Get our top stories by email.


    We are listening!

    Solve the equation and enter in the Captcha field.

    To continue

    Sign Up or Sign In


    To continue

    Sign Up or Sign In



    online financial advisory
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)
    FREE: Your Complete Family Record Book
    Keep all the Personal and Financial Details of You & Your Family. In One Place So That`s Its Easy for Anyone to Find Anytime
    We promise not to share your email id with anyone