SEBI and other things

The Securities and Exchange Board of India has been in cracking form last week. Or so it seems. I like reading about C.B. Bhave and SEBI – the comment of one of my professors, “SEBI should be plucked and thrown into the Arabian Sea” notwithstanding. But that was in mid 1998 when D.R. Mehta was its Chairman. More on SEBI shenanigans later. Some of the things that caught my eye:

–          Increase of retail portion for application to IPOs to INR 2 lakh. Which is cool if we keep seeing more issues like Coal India Limited. I do not personally like to invest in IPOs but issues like CIL make one happy given the 5% discount to the retail rats. Moreover, in the case of CIL, the quality of paper was good as also the huge institutional interest. I have not done much snooping around on the internet to figure out what the allocation is likely to be but I am hoping for a 12% – 15% return in less than a month’s time! Let’s see. My means and expectations are modest.

 –          Crackdown on shady promoters who keeping issuing warrants to themselves at a steep discount during bull runs. Since most of the conversion money is to be paid during the warrant exercise date,  a sudden correction does not cut too deep for such warrant holding promoters. So this is a good proactive step in favour of minority shareholders. I was in the ‘minority’ report of Shakti Met Dor before I sold out on 07Oct’10 at a loss of 5%. The promoter credentials and their move to delist the company at what appears to be an artificially suppressed market value did not enthuse much confidence. FIIs have come in and done their bit in India but this stock has stuck to its price since the time I sold out. Good riddance.

–          IPOs for insurance companies. Nice! For once, the IRDA agreed! I am sure many more of those emotional HDFC Standard Life ads will start hitting the boob tube in a year or so. This is one good step towards the opening up of the insurance sector. Currently, there is a cap on how much Foreign Direct Investment (FDI) an Indian partner can bring in into its insurance venture. I do not know why Pranab Mukherjee cosies up so much with the IRDA but there was a recent soundbite where he observed that SEBI and IRDA were quarelling like petulant children. Was the ULIP bickering set up by New Delhi so that the Finance Ministry gets a firmer grip over SEBI?

– Options will now feature European exercises as well. As if they were not complicated enough! Europeans are cheaper than Americans so its good. The latter can be exercized at any time during the contract period while the former need to triggered only at the end. I don’t think I give a rats ass to European or American methods of exits. All I want is cheap long dated index options and I will be happy in my bermudas. I have such simple needs.

– The Mutual Fund industry squarely blames SEBI for rendering it comatose. There has been so much of bleeding with investors taking out money from fund houses’ coffers that the latter are now resembling leaky ketchup factories. Three blows fell really:

        Punch on the MF nose: Banning of the entry loads

        Ow! The stunner left hook: All strata of investors in MFs to have similar exit loads.

        Knock Out…the final uppercut: Mark your debt assets at the market.

These are good moves from the end (read small) investor point of view but if there is no sea then there’s no fish either, right?

–          And the clincher: SEBI will now be the sole regulator of all organized financial transactions. The IRDA, the Reserve Bank of India (RBI), the Forward Markets Commission (FMC) will all accede to it. RBI’s star seems to be in its descendent. You probably know that the Government of India is the bigger debtor of the nation and therefore the RBI. So what do you do if you cannot repay? If you a small, wretched villager in Andhra Pradesh distressed in some micro debt you’d commit suicide. But if you were the GoI you’d want to print more money and debase the value of your debt. Recalcitrant RBI guvs have always been a thorn in the flesh for the Finance Ministries at Delhi. Try noticing this – every time Pranab Mukherjee says something regarding exchange rates, inflation control, the FII ‘hot money’ pat comes the counter-view from the RBI guv. Also note that the FM’s view is part of a major front page story while the RBI piece typically appears one day later and its hidden somewhere in the inner pages. But that’s digressing.

To the more informed market participants, there appears to be a lot of dirty linen in SEBI closets and some of it has indeed been cut and pasted in the internet as banners of SEBI’s double standards and doule entendres: Current chairman being the common link between the securities scam at NSDL and the abrupt cessation of investigation from SEBI later on. SEBI’s spineless conduct during the Mehta and Parikh vaccum cleaning of the market. The super-fast-track exemption granted to Bharti desisting it from making an open offer during the MTN talks. etc.

C.B. Bhave may or may not have been guilty in the NSDL scam as alleged in some parts of the financial media. But it is a tough ask navigating the markets especially when his organisation has absolute powers and there is big money involved. I wonder if they teach Arthashashtra and Chess in the IAS.

The informed seem to detest this institution enjoying legislative, executive and judicial powers all together. In fact SEBI appears to have far more teeth that the US SEC. However, for the public at large, the instiution has earned a mix of a Robin Hood and Chulbul Pandey kind of reputation. While the capital markets’ cognoscenti will see more than what meets the common eye, the masses will always get a reassuring feel when blurbs like SEBIs ban on FIIs like Barclays’ & Societe Generale’s P-Notes,  individuals like Samir Arora, Shankar Sharma and various sundry brokers and promotor groups etc.

But does SEBI do things only when provoked and is it guilty of not touching the real issues? It is definitely newsworthy but is it worthy of news?