Cheques amp; Balances

Having crashed over 400 points intra-day within minutes of the defeat, stock prices could go down no further, only because the fall was blocked by the lower circuit barrier. At the time of going to press, prices were showing some signs of stabilising. The yo-yo like movement of stock indices on Friday and Saturday indicated the massive under-current of positive support to Sinha8217;s budget. It seems fairly clear that the budget will be jettisoned and a new budget is at least three months away. The economy is once again in complete turmoil.

There was too much at stake for business and industry in Sinha8217;s budget. The tax breaks for investment in mutual funds had just begun to rake in retail savings in a big way, and the revival ofthe market was expected to percolate to the corporate sector in the form of increased liquidity.

The housing sector was also showing feeble signs of revival. As a result, FIIs too had kept their fingers crossed until the actual vote, rather than dump their investments and sit on the fence watching developments. The impact of FII selling is bound to impact the rupee, though the trend is not clear at the time of going to press.

With the economy and bourses in the doldrums, investor protection and wooing investors will once again be on the new government8217;s agenda. The dismal state of investor protection was highlighted by investor groups at a meet organised by the Consumer Education and Research Centre CERC at Ahmedabad last week. The problem, they said, starts with inadequacy of material information. Orders issued by the regulators, including suspension notices of intermediaries are usually one line communications to the press, which do not spell out the problem or the basis of the punitive action. Theresult: they neither serve as a warning to investors nor as a deterrent to offenders.

These releases are indeed posted on the internet, but that too is a problem. Regulatory bodies have a lot to learn in terms of organising their websites to provide effective communication. Investor groups have decided to petition various regulators with the demand that information posted on the Net should be far more detailed and classified in a manner that can be easily searched on the basis of subjects or key words.

Investor groups are completely impatient at the failure of all regulators SEBI, RBI finance companies and the Department of Company Affairs vanishing companies to anticipate problems by monitoring market trends and the activities of various intermediaries. Regulatory and disciplinary actions, which are excruciatingly slow, only resulted in investors to losing several thousand crore in the last two years alone.

While the regulators were learning important8217; lessons from the various scams, it is theinvestors who bore the losses. For individual investors access to the judicial system is slow and expensive. But this too has some impact. The very fact of litigation pushes regulatory bodies to stepping up investigation for fear of judicial strictures. Clearly though, the legal system is no answer. Ironically, the big blow to investors protecting their rights came in the form of a Supreme Court judgement of 1994 in the Morgan Stanley case. Until then, consumer courts, which provide relatively swift, friendly and inexpensive redressal, had begun to hear investor complaints.

After the judgement, these courts began to throw out investor-related disputes without even going into the applicability of the judgement. Manubhai Shah, managing trustee of CERC has been fighting a long battle to have the judgement neutralised through a government action bringing investor protection under the jurisdiction of consumer courts. Investors, he says, are consumers of financial services. An appeal made in 1995 is stilllanguishing.

Two examples agitated investors the most. The first, was SEBI8217;s decision not to vet prospectuses of companies going public, but also to distance itself from any responsibility for the accuracy and adequacy of information contained in the offer documents. Technically, SEBI holds the merchant banker responsible for the facts contained in the prospectus.

But, before SEBI could act against the investment banks, the large scale looting of investors had killed the primary market. Worse, even the companies who raised money have simply vanished. It is the legal action by the Midas Touch Investors Association of Kanpur, which finally led to the formation of a multi-regulator group to trace 8220;vanishing companies8221; which have disappeared with investors8217; money.

Moreover, instead of scrapping the par value concept, SEBI has permitted companies to choose the face value, opening the doors to endless confusion. If the legal system is slow and expensive and the regulators shirk responsibility, why on earthdo we have innumerable seminars to protect investors? Clearly, everyone wants booming markets but not the responsibility for keeping them that way.

Author8217;s e-mail: suchetadalalyahoo.com