Rational Expectations

But let8217;s get back to the genesis of this list of vanishing8217; companies. Total up the amount of money raised by these firms, as this newspaper did when it began its series Track Your Money a couple of weeks ago, and you8217;ll find that these vanished8217; firms had raised a total of Rs 284.74 crore. Now clearly that8217;s a lot of money, especially for the poor folk who probably invested their life8217;s savings and lost them.

But put in the context of the fact that, during the stock market boom of April 1992 to March 1996 al-one, firms raised a total of Rs 25,000 crore through just 3,911 equity issues on the primary market. Now much of this money is not worth the paper the share certificates are printed on today. Which means, especially if you take into account the very basic interest that would have accrued on this in simplefixed deposits, that investors have lost well over Rs 50,000 crore in the stock market. And DCA-SEBI decided to zero in on a Rs 284.74 crore loss!

So the issue is not really of vanishing companies8217; as it is of vanishing funds8217;. Obviously someone thought it worth their while to convince the PM that the problem was with the vanishing companies8217; and that punishing them would provide the much-needed balm to restore investor confidence.

Now it will probably be argued, by SEBI and the DCA, that it is not their mandate to ensure that no one loses their money on the stock market. That8217;s absolutely correct, but it misses the point. This is not money lost because of normal boom-and-bust cycles. The point is that many of the firms, like many featured in this paper8217;s Track Your Money series, were those which just played around with investors funds, and no one took any action.

The first firm featured, Asian Consolidated, for instance, came out with a share issue of Rs 115 crore in 1993 to set up a project tomanufacture aluminium cans for beer, but never ever set up the project the firm is now being liquidated, even though the promoters seem to be doing well. The same thing happened with some other firms written about, and mind you this newspaper8217;s series covered only a select number of firms. Clearly it must be someone8217;s job 8212; SEBI or the DCA 8212; to be tracking firms which didn8217;t fulfill its promises to investors, and to take action against them.

How well they8217;re doing their job can be seen from the fact that a limited exercise for tracking firms in 1994-95 during the United Front government8217;s tenure, found even more startling results. SEBI wrote to all the Registrars of Companies RoC to track firms that had raised funds. In Ahmedabad, for instance, it was found that of the 137 firms that raised funds in 1994-95, only 52 had filed their balance sheets. In Mumbai, only 95 of 209 companies filed their balance sheets. Nothing happened after this.

In 1998, when the BSE decided to delist 658 companies fornon-payment of listing fees and sent them notices, around 130 were returned undelivered, since companies had either shut shop, or had moved. It is estimated that of the companies that raised money between 1992 and 1996, around 600 have changed their names, and around 1,000 have changed their registered offices.No one really knows the exact number though, since there is no database on this. Ironically, the tussle still goes on between SEBI and the DCA as to who is to monitor these companies, to ensure they file their annual returns, or things like that. That8217;s also why, for instance, firms have felt free to change their names in recent times, to make them sound infotechish, to attract investors who feel infotech firms are a sure-shot investment.

Despite this, however, the poor Prime Minister has probably been told that necessary action has been taken, and enough has been done to protect the small investors interests. Pity him, if he believes his advisors.