Is SEBI Holding Back India And Indian Investor?

Intention of this blog is not to blame but let India and Indian people rise and shine

Who is Holding Back India, lets define

A person / institution “extract money” by misselling product or services to people rather “taking money” for product or services provided

Example can be given as

: Hospital asking for surgery / treatment in ICU with intention to make money for them rather than improving health for patient

: Cartelization by cement companies by selling / maintaining higher prices of cement even when demand was lower. Making handsome profit even at lower capacity utilization.

: Cartelization by builders by maintaining higher prices of property even when demand was lower

: Cartelization by telecom companies by charging Rs 100 to Rs 250 for 1GB of data prior to Jio’s entry

: Companies used to sell vanaspati tel (which is 60% cheaper than milk) as ice cream to make more profit

: Few decade ago a toothpaste company used to oppose salt and coal (to kill competition), now selling its product with salt and coal

Sebi got statutory powers post Harshad Mehta scam. Thanks to SEBI, now a day we don’t have big scam like Harshad Mehta/ Ketan parekh. But while bringing regulation over decades, SEBI has been instrumental to institutionalized securities market business in India.

I) Primary market

PE investment in, IPO system out

In earlier 1990 we used to have lot’s of IPO. Even company like Infosys has got itself listed. Post listing to year 2000 (software rally) it appreciated by 245 time i.e. 245*100= 24500 % return

It has created enormous wealth

Now IPO is regulated but very few IPO. Sometimes IPO prices are also high

Mostly large company comes out with IPO. Now companies go to PE investment or other option if they want money

Think over if company at early stage (small / medium size) comes out with IPO, it can create wealth for small investor.

How many small investors invest in PE fund??

Too much regulation killed the spirit of IPO or way for small investor to access to create wealth.

II) Secondary market

Intermediaries

a) Mutual fund: Due to nature of product, business is run by institutions

Number of AMC is 42 (as of Nov-2017)

b) PMS

For registering as PMS: Net worth requirement is 2 crore and fees are 1 lac for application and 10 lac for registration (valid for 3 years), renewal fees 5 lac.

Payment of fees allows / make eligible to do business but can not help / guarantee of income / revenue. Registration fees is like license fees to do business. 

Higher / lofty entry barrier

Number of PMS is 259 (as of Nov-2017)

c) IA / RA

Net worth and registration fees are lower as compared with MF and PMS

Advisor / analyst can do financial planning

Total number is 772 +443 (as of Nov-2017)

Lets start with

i) Who create wealth in stock market?

We talk about Rakesh Jhunjunwala (In India) or Warren Buffet (In world) as investment guru in stock market. People with highest talent (like IIM, IIT pass out) may not necessarily make highest profit / money in stock market. It’s more about judgment / vision / reading between lines / mindset / predicting ahead of time.

What do this means is people with highest talent / most sophisticated IT system / highest capital may not necessary biggest wealth creator

ii) Due to entry barrier in MF/PMS business is run by institution

Except few fund / scheme you may find some of top holding in can be same / similar / well known companies in various mutual fund holdings.

When institution sells ULIP in 2008, are they more concern about their profit or investor’s profit?

In 2015, market was down and institutions promoted SIP.

For PMS, minimum investment requirement by investor is 25 lac or 50 lac (not for small investor)

Is institution more interested in their profit or have genuine intention to create wealth for investor?

iii) Restriction of doing business on IA / RA

Investor can get input from print-tv-online media

“There is no free lunch”

: Say a broker is giving research report. He is interested in broking income.

: Information / discussion on TV. Media is interested in income via advertisements

: Fund manager talking about his investment (and stating cleverly that it is not recommendation), is interested in taking his stock price up or increasing investment return 

Investor can get input from print-tv-online media without risk profiling and KYC.

But as per SEBI regulation, for IA to give advice to investor, risk profiling and KYC is compulsory. Investor should give / share details of his income per anum, various assets and investment done to IA and also reply to questionnaires of risk profiling.

People are hesitant to give their personal details like income and assets.

In addition SEBI has put complex restriction on trading “Independent research analysts, individuals employed as research analyst by research entity  or their associates shall not deal or trade in securities that the research analyst recommends or follows within thirty days before and five  days after the publication of a research report”

So IA can’t invest in stocks which are recommended to clients

iv)

Grey area

It is possible

: One arm of institution buys a stock and afterword other arm of same institution recommend same stock to public

: One arm of institution recommends a stock to public and other arm of same institution sells stock /books profit.

v)

So all these regulations since 1992 leads to

: Small investor should do SIP / MF investment

: HNI can do PMS

i.e. only institutions should do business in India.

Investors will be at mercy of institutions for their return on investment

III) Word of wisdom

“Transparency” is the only way to rise for India

i) Single law should be applicable to all Intermediaries and print-tv-online media

ii) Anyone talking about a stock should disclose

present holding,

purchases / sale in past one year and

purchases / sale in next one year

directly or through group company / subsidiary / related party

iii) Small token of amount should be taken as registration fees