Sebi did well to order the impounding of Nissan Copper trades following evidence of market manipulation as soon as it was listed. Nissan Copper's share price had soared from an opening at Rs 40 (close to the offer price of Rs 39) to a high of Rs 137 on listing on December 29; the volume was over ten times its capital. The shares were shifted to the trade-for-trade category when the scrip rose 20 per cent to hit the upper circuit on the second day after Sebi's investigation began. The regulator will also probe a large block deal at over thrice the offer price, which occurred that day. While Sebi acted swiftly, there is an interesting twist to the issue. The self-styled Citizens Action Forum claims to have written several letters warning the regulator about the company and its promoters, well before the IPO was cleared. Copies of these letters have been acknowledged by Sebi, but its primary market department did not get any investor complaint. Sebi's mechanism for sorting correspondence needs to be fixed to ensure it hears market intelligence and it reaches the right department to ensure action.
Investor beware
There are new developments on IPOs that were graded by credit rating agencies as part of a 12-company pilot project. Investors would recall most of these were small companies that got a poor rating of one or two out of five; only one — JAS toll roads — got a three point grade. Minar International, the first to be rated, dropped its IPO after getting a poor grade. But Shree Ashtavinayak Cinevision, which had the same grade, sailed through with a 6.6 time over subscription. Consequently, all other companies with a poor IPO grade are now renewing their IPO plans. We learn institutional investors stayed away from Ashtavinayak, as their internal compliance rules would need fund managers to justify investment in poorly-rated IPOs. The entire subscription seems to have come from retail and high networth individuals. Does this mean that these investors are all a bunch of gamblers? The real truth will be known only if Sebi learns any lessons from the Nissan Copper case.
PIO proof
This time around when persons of Indian origin (PIO) come back to celebrate Pravasi Divas, there’s bound to be heartburn about the mutual fund investment number (MIN). Until recently, most mutual fund investments required only two status categories to be disclosed — resident and non-resident. An investor writes to say that under the heading ‘nationality’, those who check on PIO have to attach a copy of their PIO card. Since the MIN rules were suddenly sprung on investors, they would have to rush to get PIO cards, or have their investments locked up. However, NRIs and PIOs can get MIN from wherever they are located. They will get one only on mailing the form along with certified copies of backing documents to a MIN agent in India. This means all investments will be locked up and new investments can’t be made until these requirements are met.
Tracking netas & babus
Anil Deshpande, a mutual fund investor, has a question about the MIN application form. He says, “It is amusing to note in Section C2 B of the form, under additional information, an investor is asked to identify if (s)he is a civil servant, bureaucrat, politician, current or former MP, MLA, MLC or current or former Head of State. One can think of only two reasons why this information is asked for: either this group is meant to get a preferential treatment under the Prevention of Money Laundering Act, 2002...or they are particularly suspect under it. Which one is it?"
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