NEW DELHI, Oct 18: The Government should not allow companies to buy back their shares as it will provide greater opportunity for stock price manipulation, derivatives committee chairman L C Gupta has said."Introduction of buy-back is unlikely to improve the stock market climate. It might even worsen the climate as buy-back will facilitate more manipulation," Gupta said in a letter to Prime Minister Atal Bihari Vajpayee. Gupta, also director of the Society for Capital Market Research and Development, said buy-backs will result in many abuses in the capital market.Highlighting concerns over buy-back, his letter said many company promoters actively indulged in market manipulation and once buy-back was allowed, even a rumour would result in violent upheavals in the market. "Company managements, in collusion with market operators will make a killing at the cost of common investors," he said.He said fear of misuse of buy-back by promoters is real in Indian conditions given the poor state of corporategovernance and weak regulatory system. "Indian regulations have not yet been able to come to grips with the problem of market manipulation, causing heavy losses to investors," Gupta said. Gupta, former member, Securities and Exchange of Board of India (SEBI) said before the introduction of buy-back there is need for reform of corporate governance. "Buy-back can wait. Reform of corporate governance is more urgent," he said.At this juncture when the confidence of the investing public is already shaken and investors are shying away from the capital market, introduction of buy-back provision may boomerang, causing further damage to investor confidence, Gupta stated.Indian business houses through their associations, have been lobbying for buy-back with the purpose of strengthening their own voting control over companies at no cost to the promoters, he said. "Is acquisition of voting control by promoters free of cost a worthy cause to support buy-back," he asked.He also said if government allowsbuy-back of shares just because some other countries allow it, it would ignore ground realities in India where price manipulation in shares is very common.Highlighting cases of price manipulation, Gupta cited the recent crisis in stock market due to manipulation in shares of Videocon International, BPL Ltd and Sterlite Industries. He also highlighted the case of M S Shoes which led to the closure of BSE for three days.
