There is bad news regarding investigation into the 2000 scam. For the past six years, after it was found that Kolkata-based stock operators played a big role in manipulating share prices, the Kolkata police has been doggedly pursuing the cases against Dinesh Dalmia of DSQ Software and cronies of Ketan Parekh, the key accused without outside prompting. Action was initiated against all major price manipulators, while Ashok Poddar and Rabindra Biyani who allegedly routed Parekh’s money through the unofficial market, were declared proclaimed offenders. Dalmia himself was absconding from India for several years, but when he returned recently after duping investors in the US and UK of an estimated $125 million, the Kolkata police was hot on his trail again. All that may end soon. The team leader, Swapan Dasgupta, has been transferred out of the scam investigation cell on a promotion as Assistant Commissioner of Police. While Dasgupta’s promotion is indeed well deserved, it is a sad day for the investigation, especially with the Dalmia appeal scheduled to come up before the Supreme Court on January 3. Jubilant scamsters claim credit for Dasgupta’s transfer and threw a bash at a five star hotel to celebrate his exit. Those who have followed the investigation say that a change in attitude is already evident.
Ever since the Securities and Exchange Board of India (Sebi) began to register, recognise and interact with investor associations on capital market issues, it has struggled to find more than a dozen associations worthy of recognition. At one time, the number was down to nine. It was often said that the pathetic state of investor affairs was reflected in the fact that India has 23 recognised bourses but only nine investor associations. This year, Sebi has set a record by recognising as many as 17 investor associations including one each from Assam, Orissa and West Bengal. This is the first time that associations from eastern India have been drawn in through a capacity building effort. That chairman Damodaran is a Tripura cadre bureaucrat was probably an added interest to focus on the region. Interestingly, although Kolkata was always an active trading centre it had turned into a speculators’ haven in the last couple of decades. There has been very little organised investor activism from the city. That may now be in for a change. Sebi has also chalked out plans to bring investor groups from smaller locations up to the scratch by sending them to a training session at the Indian Institute of Capital Markets, which it is in the process of taking over. Incidentally, all 17 associations passed unanimous resolutions supporting Sebi’s plan to make IPO grading mandatory, asking the regulator not to eliminate the retail investor quota in IPOs and to rationalise demat charges in order to reduce the burden on investors.
One of the big regulatory embarrassments for the government in the mid-1990s was the slew of ‘plantation’ companies that raised well over Rs 10,000 crore from gullible investors by promising incredible returns on teak, grape and strawberry plantations. It was only after these Ponzi schemes went bust that the government realised they were completely unregulated. Sebi was ordered to take on the job of regulating such “collective investment schemes (CIS)” and it filed 290 prosecutions against those that vanished. In the last year, a Delhi court has passed orders in 34 cases convicting promoters in most cases. Unfortunately, it is a bitter success because the penalties and sentences are shockingly trivial. Some have even been let off with a court admonition. Although over 250 cases are still to be decided, the trend is clear — there is little likelihood of investors getting even a small fraction of their money back.
Early in 2006, mutual funds hit on the bright idea of launching ‘Contra Funds’. Three funds — DBS Chola, UTI Contra Fund and ING Vysya ATM (Against the Market Fund) — made their debut in quick succession seeking to beat the market through contrarian investing strategies. At the end of 2006, all three have lived up to their name if not their promise of earning higher returns through their strategy. While the market rose sharply in 2006, each of the contrarian funds failed to beat their respective benchmarks. UTI Contra was the worst performer and the only one to actually lose investors’ money. Launched on March 27, 2006 the fund has a negative return of -4.7 per cent, while its benchmark, the Nifty 50 rose 6.8 per cent in the period. ING Vysya ATM fund was launched on 20 February 2006 has announced a return of 3.9 per cent, while its benchmark, the BSE 100 rose 17.4 per cent. The DBS Chola fund launched on 14 February 2006 gave a 12.7 per cent return, which is relatively closer to the 14.21 per cent increase in its benchmark index — the CNX 500. Since fund managers get hefty bonuses in the US if they beat their benchmark by even one percentage point, these are poor returns indeed.