Why Savers Have Stayed Away from Stocks for Two Decades
SEBI is preoccupied with more powers, hefty fines and other issues which have nothing to do with investor interest or protection
 
At Moneylife, we are of the firm view that investment in good stocks for the long term (7-10 years) is the only way that people can hope to beat inflation and grow their savings to last them through a couple of decades of life after retirement. Except ‘government servants’, who are on an inflation-adjusted salary and pensions, all of us have to worry about how much to save, to take care of galloping healthcare costs, cost of services, food and education. 
 
But investors dread the capital market and with good reason too. Moneylife has repeatedly pointed out, over the past 10 years, that India’s investor population has shrunk in the 25 years since we embarked on economic liberalisation. People are scared about investing in the market after being scammed by market manipulation, inadequate disclosures, dubious management practices and initial public offerings (IPOs) at inflated prices that seldom leave room for returns. Worse, complaints to the regulator are a waste of time and resources, since policy-makers have yet to grasp the fact that investors are more concerned about getting their money back than seeing the culprits punished.  
 
Yes, 25 years after the Securities & Exchange Board of India (SEBI) was set up as an independent regulator and its powers expanded comprehensively to make it one of India’s most powerful regulators, investor confidence in the capital market remains dishearteningly low. SEBI has never publicly acknowledged this issue, let alone address it. Hence, it was refreshing to read that Ashish Chauhan, CEO of the Bombay Stock Exchange (BSE), said recently that India’s investor population “has reduced in the last 20 years, despite many technological advances and there is a need to introspect as to what led to the fall.” Mr Chauhan estimates that India has 270 million investors; while the Indian middle-class has grown 10 times in the past two decades, the investor population has remained the same. Our estimate of the investor population is considerably lower. But acknowledging a problem is the first step towards addressing it. It is now important that the regulator also admits that there is a serious issue and works on fixing it. 
 
Unfortunately, SEBI is more focused on expanding its regulatory remit and increasing its punitive powers, rather than on redress of investor grievances. Although it is already one of the most powerful securities regulators in the world, SEBI is lobbying for powers to conduct search and seizure operations without getting a court warrant (as required under the regulations notified in September 2015). A court warrant is a basic judicial oversight prevalent in most developed nations to prevent flagrant misuse of powers by regulators; however, SEBI argues that local courts do not understand markets and are quick to grant stay orders to companies or individuals against SEBI action. A former SEBI law official is quoted as saying that getting permission for a raid leads to leakage of information and destruction of documents. If these are SEBI’s arguments to demand unbridled powers, then, we, the people, can make a far stronger case to hold the regulator accountable and make it less capricious and more transparent in its dealings. Consider this: 
 
  1. The casual manner in which SEBI used its power of arrest for the first time after the sweeping 2014 amendment of its Act itself makes a strong case against granting more powers to the regulator. Its action came in for serious criticism by the Bombay High Court.
  2. SEBI claims that information is leaked during a court process; but this is symptomatic of the massive corruption in India, including in SEBI. Let us also not forget the 2008 episode where a SEBI manager, Jerome K Alexander, colluded with market operator Nirmal Kotecha to fabricate an official SEBI letter which was sent to Pyramid Saimira asking it to make an open offer. SEBI was unconcerned that its order to send Pyramid Saimira into liquidation, instead of forcing a change in management, caused massive losses to shareholders and employees. There are other instances where even senior SEBI officials have been under scrutiny, including in the Saradha scam.
  3. There are innumerable examples where SEBI has steadfastly refused to act against certain powerful companies or has acted selectively, despite documentary evidence supplied to it. Helios & Matheson is one such case. Thanks to long years of inaction by SEBI, the company has effortlessly cheated hundreds of senior citizens who were lured to invest in its fixed deposits. 
  4. Media reports, including documents seen by this writer, suggest that SEBI did not act on specific information on Vijay Mallya’s foreign transactions when it was tracking Anil Ambani’s dealings with Union Bank of Switzerland (UBS).  
  5. In another case involving a powerful media house, SEBI’s refusal to act on written complaints for several years has, finally, landed up as a complaint with the Central Vigilance Commission. 
  6. Even on simple matters, like taking cognisance of anonymous complaints, SEBI has different standards. It will follow the rules and ignore anonymous complaints when it chooses to (including those against its own chairman) and go to the extent of seeking a response from the board of directors, in select cases. The rules vary according to the entity involved. 
  7. Finally, SEBI has landed in a soup over the Supreme Court’s (SC’s) interpretation of its discretion to reduce penalties under Section 15J of the SEBI Act, after it was amended, in 2002.  SEBI’s consent orders, as well as the penalties that it levied, have usually been decided without a clear and written linkage to the gravity of the wrongdoing. If one entity was levied a penalty of Rs1 lakh for insider trading, another may be slapped with Rs1-crore penalty, without any explanation. This game may have come to end with a case involving Roofit Industries. This company had repeatedly ignored SEBI’s show-cause notices amd had been slapped with a Rs1-crore penalty in 2002. The appellate tribunal cut it drastically, to Rs60,000, since Roofit was then on the verge of bankruptcy. SEBI filed an appeal and the SC delivered a bombshell in November 2015. It said that between the amendments of 2002 and 2014 to the SEBI Act, the wordings of the law provide the regulator no discretion to reduce penalties. On the contrary, the law was amended specifically to enhance penalties. SEBI is likely to seek a review of the order; but, until then, all undecided cases in the 12-year period (and there are many) will be in limbo. 
 
A common thread that runs through the examples cited above is that none of them benefits or relates to the ordinary investor who may have lost his shirt due to stock price manipulation, cheating by intermediaries, insider trading, poor accounting or dodgy disclosures. Whether SEBI collects a fat payment under consent proceedings or levies a hefty fine on a wrongdoer, who has been cheated by an intermediary or wrong corporate accounts and disclosures, there is no specific relief for the investor. 
 
SEBI’s policies must be framed to ensure grievance resolution rather than imposing penalties that only support its vast and expanding bureaucracy. Take the case of IPOs whose prices head south on listing. The intermediaries are directly responsible for disclosures and omissions in the prospectus. Investment bankers or auditors have almost never faced the music, so why will they mend their ways and ensure fair pricing? Until regulatory action is recast with investor interests in mind, only a few investors, with access to serious financial analysis or knowledge of trading, will invest in equities. All others will stay away. 
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COMMENTS

Sagar Rao

3 years ago

Really good article.

Fairy gada

3 years ago

Being a financial writer, I keep on praising SEBI in my blogs and articles and telling investors that SEBI is there for you...

Need to edit those sentences and add "theoritically SEBI is for investors..."

Pushpesh Kumar Sharma

3 years ago

hope this article helps to break the slumber of SEBI.
pushpesh kumar, bathinda, punjab

sundararaman gopalakrishnan

3 years ago

Excellent article..You have hit the nail on the head..SEBI works for the rich and powerful only.
The ordinary investor does not benefit at all thru SEBI's existence
No doubt, the common man is afraid of stock markets and instead parks his money in Gold and real estate

V ganesan

3 years ago

I am a mutual fund ifa I advice people to invest based on their needs and advice only for long term through systematic investment .But majority of the savers ask me returns .i reminded them my own experience Between years 1992 and 2002 market return is nil.I frankly point out that period .Where as savers ready to put money in insurance and ready to wait 15 to 20 years for a pathetic return.because confidence level is very high in insurance but people are not beleiving mutual funds or direct equities.I am not selling insurance .and lot og mf agents and insurance agents gave false promises and missold mf schemes at the 2003 to 2008 bullrun.

REPLY

Fairy gada

In Reply to V ganesan 3 years ago

This was helpful. Thanks.

manoharlalsharma

3 years ago

Why Savers Have Stayed Away from Stocks for Two Decades / Ans; is Not only SEBI but all of the agencies failed to deal with complaints and no one has time to followup year after years even courts r failed.

Mohan Sivanand

3 years ago

The question now is how will somebody convince investors that the stock market is a good place to grow wealth? Most people "invest" in insurance products because there are agents to lure them. An equity-investment culture can be created only if youngsters are financially educated. If that happens, the next generation will change things. It may now be difficult to convince older market-skeptics, especially those who may have lost money to scams and IPOs that never did well.

REPLY

Fairy gada

In Reply to Mohan Sivanand 3 years ago

My friend's father-65 years old, actively invests in d stock markets. My father-50 years old has 0 investments.

I dnt knw wht is he afraid of...

R Balakrishnan

In Reply to Mohan Sivanand 3 years ago

It is a constant dilemma in a country like ours. Savers, who cannot afford to lose money, are the ones who get badly impacted. They are all alone out there. My advise to people is that you should come in to equities, with money that you CAN afford to forget or lose. That, unfortunately, cuts out the majority of folks out there, who think that equities are a sure fire way to make money. The point, as Sucheta is making, is that we need a regulatory framework that protects us from fraud. Our risks just multiply, with careless regulators like these.

Divya Shah

In Reply to R Balakrishnan 3 years ago

i am new in Market. aur mere friend dalalstock.in ki services le rahe he. aur usne muje suggest kiya ki me bhi dalalstock.in ki servics lu. to mene google me dalal stock search kiya aur galti se dalalstocks.com ki service leli. aur uske bad meri capital zero hi hogai samjo.
to meri sab logo se guzaris he ki DalalStock.in se hi services le. dalalstock ka name use karke dalalstocks.com chala rahe he. dalalstocks.com se free me bhi services naa le.
kafi sare aise log hoge jo dalalstock.in aur dalalstocks.com me dhokha kha gaye hoge.
and sabse important baat ye hi dalalstock.in wale kabhi kisi ko samne se call nahi karte. agar aapko aisa koi call aaye to vo fraud he. because dalalstock.in ki services lene ke liye wait karna padta he.

Vivek Naik

In Reply to R Balakrishnan 3 years ago

excellent advice sir.

K. M. Rao

In Reply to R Balakrishnan 3 years ago

Sir, Why should I invest in stocks if I have to be prepared to forget or lose money when there are other alternatives ( atleast where my investment is safe) available ? This is the first stumbling block for those who can afford / want to invest in stocks. Unless this is satisfactorily addressed, no amount of "investor education" will help. Take my own case; I subscribed to this wonderful magazine and also to MSSN but I did not invest even a single rupee, though I can, as there are other safer and better options.

Fairy gada

In Reply to K. M. Rao 3 years ago

I dont think forget means to completely forget it. Just not to disturb it.

I read somewhere.. to cook the rice properly, proper amount of water must be added, accurate heat and time is required. if you keep on opening the lid again and again, you are spoiling the process. But this does not mean you have to forget that the stove is on.

this was compared to equity investing.

uttamkumar dubey

3 years ago

Nobody talks about transparency and even they does they dont implement it.

The rules and laws of SBI, LIC, PNB and alike can be floated by any powerful politicians to favor them making the country and people poorer...

i dont see any fairness, lets hope and pray for good luck and slowly gradually start to become corrupt.

Suketu Shah

3 years ago

One very important point I wish to make against MF agent,share brokers and esp wealth management companies-it is not that we investors are "greedy" for money and hence take high risk and lose money.It is that YOU PEOPLE fool us (due to our lack of knowledge) promising high returns and we fall for it.You people are cheats and frauds.We are not at fault.You people are at fault for cheating us with false promises when we used to be ignorant.We investors are NOT "greedy".

No wonder investors have fled equity markets as rightly pointed out in the super article above by Ms Dalal as SEBI has done nothing at all last several yrs to protect investors in equity markets or otherwise only watching the show like one is watching an Akshay Kumar movie.

Vaibhav Dhoka

3 years ago

SEBI's actions seem to be income garner SEBI never stood to to its PREAMBLE,For safeguarding investor but its action are anti investor and pro broker/corp orates.

​Sharepro banned from securities market

SEBI passes restraining order related to Sharepro and entities linked to management of Sharepro from securities markets 

 

Markets regulator Securities and Exchange Board of India (SEBI) passed an interim order today restraining Sharepro Services and several entities linked with the management of Sharepro  from buying, selling or dealing in the securities market or associating themselves with securities market. This restraining order will be applicable till further directions are issued.The order observed that dividends and shares belonging to rightful investors were transferred to persons related to the management of Sharepro.
 
In addition, companies who are clients of Sharepro have been directed to conduct a thorough audit of the records and systems of Sharepro with respect to dividends paid and transfer of securities. The purpose of the audit is to determine whether dividends have been paid to actual/beneficial holders and whether securities have been transferred as per the provisions of law. SEBI has also advised the clients of Sharepro to switchover their activities related to a registrar to an issue and share transfers to another registrar to an issue or share transfer agent. Alternatively, these clients can carry out these activities in-house.
 
Sharepro is the share transfer agent of many listed companies like Larsen and Toubro, Mahindra and Mahindra, and Britannia among others. Asian Paints has already informed the exchanges that, TSR Darashaw will be its RTA from 1 April 2016. Britannia and Aptech have also informed the bourses about terminating their agreement with Sharepro.
 

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COMMENTS

K VENKATARAMAN IYER

3 years ago

We are all shocked to learn that such things are happening in sharepro Which caters to India'leading professional organization like L&T etc.This shows that they have cross check over them or they are indifferent to their own shareholders interest!
I am surpraised why moneylife,the one &only proactive organization has taken three to four weeks to reactand reort.Even financial papers like business standard and the hindu businessline just reported the news and that all.I hope somebody will make a report on working of various R&T other than sharpro also.

Finally, penny stock manipulation under CBDT scanner, even as SEBI sleeps
Moneylife has been highlighting rampant manipulation in penny stocks for the last seven years, but there has been no action by SEBI. The CBDT has now been forced to issue a direction seeking information on investment in penny stock where prices were rigged
 
The Central Board of Direct Taxes (CBDT) has issued instructions to carry out detailed enquiry of taxpayers who had invested money in penny stocks, whose share prices were artificially raised for booking bogus claims of long term capital gains (LTCG) or short term capital loss (STCL) by various beneficiaries.
 
The order issued on 16 March 2016, says, "...the said instruction is in the context of investigation conducted by Kolkata Investigation Directorate in respect of large number of penny stock companies, whose share prices were artificially raised on the Stock Exchanges in order to book bogus claims of long term capital gains or short term capital loss by various beneficiaries. Extensive investigation, including search and seizure/ survey action on entry providers, riggers, beneficiaries etc. was conducted by the Investigation Directorate in such cases. Based upon outcome of such investigation and analysis of the data, the Systems Directorate has now uploaded details of such information in respect of individual assessees who have made transactions in such penny stocks."
 
"Vide EFS Instruction under reference a new button 'Penny Stock' has been added on Individual Transaction Screen (ITS) to display information related to penny stock, now enabled on the screen of the Assessing Officers (AOs). Available information regarding the manipulative transactions has been captured in the functionality, including the investigation report of the Kolkata Investigation Directorate. The functionality also contains a guidance note for the Assessing Officers. Such details are visible to the AOs of those assessees whose particulars have emanated out of the investigation report of Kolkata Investigation Directorate and whose cases have been considered actionable, at this stage. The details are also visible to supervisory officers of such AOs," the order says.
 
Moneylife routinely writes about many such stocks, in the every issue of the magazine’s Unquoted section (http://www.moneylife.in/markets/unquoted), where stock prices either have rocketed or cratered without any respect to stock fundamentals. Moneylife also carried an exclusive Cover Story in 2012 (http://www.moneylife.in/article/stock-manipulation/27957.html), which saw many stocks rising and falling right under the nose of Securities & Exchange Board of India (SEBI).
 
However, the latest directions from CBDT follow a 'secret' letter from Shaktikanta Das, then revenue secretary, to the SEBI Chairman. In this letter sent last year, Mr Das has informed the SEBI Chairman about "investigation carried out by the Income Tax Department (ITD) showing regulated securities or commodities market mechanism being misused for large scale systematic tax evasion and round tripping of unaccounted funds... to generate fictitious LTCG."
 
"Such rampant manipulations call for concerted and coordinated action by the agencies concerned. SEBI's proactive role in the above context is crucial," Mr Das has written in the letter.
 
In December 2013, the SEBI Board approved the SEBI (Procedure for Search and Seizure) Regulations, 2013, made on the lines of the provisions in the Income Tax Act, 1961 and for providing the detailed procedures for such search and seizures by SEBI. This conferred direct powers on SEBI chief to authorize the investigating authority or any other officer of SEBI to search any premises where incriminating documents are lying and seize such documents for the purpose of investigation. The Ordinance also empowers SEBI to make regulations for executing the search operations and to ensure safe custody of any books of account or other documents that are seized.
 
However, nothing much happened despite SEBI gaining such powers.  
 
In his letter, Mr Das further stated, "Investigations conducted by ITD in the transactions of the aforesaid nature could not bear the desired fruits inter alia for the reasons that in most of such transactions the regulators concerned such as SEBI did not record any adverse finding qua such transactions. Judicial authorities have held that unless the corporate veil is lifted, onus on revenue is not discharged. The action taken by SEBI in such cases unravelling the facade is of critical importance, in these cases for effective handling of menace of bogus LTCG."
 
Mr Das also highlighted the time limit on such cases. "...income-tax Act, 1961, prescribes time limits within which assessments can be completed and tax demands can be raised. Therefore, timely action from SEBI in such cases would help in ensuring appropriate actions by the Income Tax authorities. SEBI may take note of violations of KYC norms by the stock brokers for further appropriate action," he concluded.
 
Earlier, in 2014 and 2015, SEBI had grandly claimed that it has busted schemes, which misuse the stock market platform for money laundering. Obviously, what SEBI claimed as a huge crackdown on those two occasions, hardly scratched the surface. 
 
Last year, to check market manipulation through penny stocks, the market regulator came up with and idea to create a new group T+ for scrips that are found to be prone to market manipulation. 
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COMMENTS

Ramesh Poapt

3 years ago

one more good one from ML!!!

Vinayak Bhimrao Mudholkar

3 years ago

Will genuine traders/investors in small/micro cap segment be harassed?

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