Sebis good moves

Fear not: anchor investors are a good thing. Those perennially puzzled by the contortions that modern finance forces upon English might have thought,on reading that the Securities Exchange Board of India had approved of anchor investors,that Sebi had formally smiled upon television journalists talking up the markets. But anchor investors are not anchors whore investors. Theyre private players who take the lead in seeking out good investments and,by putting their money where their mouth is,serve as an anchor for other investments from smaller players who typically have less information. A classic recent example: Warren Buffett investing in post-crisis Goldman Sachs. A market in which anchor investors provide signals is a market that household investors will find easy to operate in. And thats good news all round.

For,while India continues to possess an excellent household savings rate excellent partly because it includes the savings of many small or informal businesses it continues to be locked up in the family Storwel more often than not. Indias households have too much in unproductive physical capital durables,property,gold and jewels. Some of that is being turned into financial assets,but the rate of conversion is too slow and over half of it is going into fixed deposits,anyway. Households need to be given avenues to participate in the market; their savings need to be mobilised and put to work at the frontiers of the Indian economy,through the stockmarket. Last year,in the US,households or individuals accounted for over 80 per cent of mutual funds assets. The corresponding number in India? Thirty seven per cent.

So Sebis move to recognise the role that anchor investors play by letting them have some of the quota reserved for big institutions in a new stocks initial public offering is deeply welcome. It joins a series of recent actions that makes the

market more open: allowing individuals to put small savings under Rs 50,000 into mutual funds without a PAN card; and cutting down on the fees that mutual funds charge investors. Both these make it easier for those with small amounts to invest to look at stocks. We may begin to see a genuine deepening of Indias ownership society.