Why small investors don’t benefit from the boom

Companies like Infosys, Wipro, Tata companies, Birla companies, Reliance and MNCs take interest in dematerialisingshares and are quick in responding to the demat demand of investors. All others are taking time. Some companies also utilise this delay to create a shortage of floating stocks in the market. As a result, “SEBI had even warned these companies to expedite dematerialisation of shares,” said an official of a private bank which is also a depository participant.

For small shareholders, however, as a one-time exception, SEBI has allowed small investors to sell small chunk of shares through the conventional physical transfer of share certificates, even though they are in the compulsory demat mode upto 500 shares can be sold this way. The buyer cannot, however, reintroduce these shares in the market and he will have to send it for dematerialisation.

The 104 companies where all investors will have to compulsorily trade in demat shares include Britannia, BPL, Bank of Baroda, Tisco, Telco, Zee Telefilms, Reliance, RPL, Pentafour, MTNL, IPCL, Nestle, HLL, Hindalco, Glaxo, M&M, NIIT, Ranbaxy, Bajaj Auto, VSNL,Infosys, ICICI, IDBI and Larsen. “For small investors in these companies, conversion of physical shares into demat shares has become a big headache as some companies take unusually long time to complete the process,” said a BSE dealer who buys demat shares in the market.

According to one of the depository companies which keep records of demat shares NSDL 438 companies have already signed up with the depository to dematerialise their shares. The number of such shares immobilised amounts to 8783 million valued at a whopping Rs 159,800 crore ($ 37 billion). The market capitalisation (the combined market price of these companies) works out to Rs 4,37,000 crore ($ 101 billion). Once NSDL achieves connectivity with CDSL, the figure is likely to shoot up further. However, not a single company has achieved 100 per cent dematerialisation of shares. Wipro has achieved 92.68 per cent dematerialisation, SSI Ltd 90.96 per cent and Dabur 85.86 per cent.

Initially when an investor sends his shares for demat, thedepository will have to send the shares to the company/registrars for verification. Once these shares are dematerialised, then the process becomes very simple and transactions through the depository are done speedily. When investors sent shares to the company for dematerialisation, it takes lot of time (even three to six months). The advantages of dematerialising the shares are many. Share transfers can be done in one day unlike the conventional physical transfer which takes five to six months for transferring the shares. Here again, there is no problem of bad delivery. It is virtually impossible to forge the shares in a depository.

The first stage for investors is really to go and open an account with a depository participant — there are 97 DP in the country, and include banks such as ICICI Bank and ANZ Grindlays. You then send your shares to the companies for dematting. After dematerialisation, if an investor buys or sells shares, depository is informed about it and suitable entries are made in thecomputer. Investors can dematerialise shares of companies which signed up with the depository for immobilising the shares. As per the Depositories Act, a company is bound to give the investor an option of trading in demat or physical shares.