Sucheta Dalal :Part-time chairman
Sucheta Dalal

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Part-time chairman  

Oct 18, 2004


It is over a year since M. Damodaran was posted as chairman of the Industrial Development Bank of India and five months since this government has been in charge. But it still hasn’t managed to find a fulltime chairman for UTI Mutual Fund (UTI-I). UTI, meanwhile, has put the double debacles of 1998 and 2001 behind it and wants to sashay abroad with the UTI-SSgA-Global Titans Index Fund. This Fund proposes to invest in stocks that comprise the Dow Jones Global Titans 50 Index.

The Securities and Exchange Board of India (SEBI) is correctly hesitant to clear UTI’s plan and wants it endorsed by the High Level Committee comprising the Finance Secretary, Reserve Bank Governor, Insurance Regulator and the SEBI Chairman. After all, UTI remains India’s largest mutual fund (despite a split), has inducted no ‘strategic investor’ as proposed during the split, and remains just as vulnerable to political pressure and manipulation. SEBI wouldn’t want to take responsibility for clearing UTI’s foreign plans, even if there was no issue about whether certain companies qualify for UTI’s investment. We believe that UTI at least needs a fulltime chairman before launching its ambitious global schemes.

Adjudicate this

After the furore over their non-availability, orders of the Securities Appellate Tribunal (SAT) issued since January this year, have all been posted on SEBI’s website. However, SEBI’s own adjudication orders are still not on the Net. Yet, the clamour for publishing SEBI’s adjudication orders predates the controversy over SAT orders. If the regulator showed such speed in publishing SAT orders, why is it dragging its feet over posting its own adjudication orders? Isn’t the regulator accountable to the public? Who is responsible for the delay? And if repeated instructions from the chairman to post the orders are not complied with, should not somebody be pulled up for inaction?

On a similar theme, investors also want to know what happened to the Central Listing Authority (CLA) that was announced by SEBI. The recharged primary capital market is attracting a variety of dubious industrialists seeking public funds. This is the time when a CLA ought to have been operational and clearing listing proposals. Also, if nobody has felt the need for a CLA, it is worth debating whether it is needed at all. Either way, this is an issue that needs clarity and finality and not empty assurances.

Grey areas

Despite the retail rush to invest in recent Initial Public Offerings (IPO), a fortuitous default has prevented gullible investors from being duped by grey market operators. Although the media has been quoting grey market premia for recent IPOs by TCS and NTPC, the market has largely limited to the New Cloth market of Ahmedabad. Part of the reason is that four brokers defaulted on their grey market commitments in TCS. Hence, the grey trade is now focussed on multiple retail applications in order to maximise the chances of allotment and a market has emerged for buying ‘benami’ applications. Anyone with a PAN number applying for Rs 50,000 worth of NTPC and willing to sell on allotment could collect Rs 1,800 for the deal. Whether this trend catch on will depend on NTPC’s opening price on the bourses. Meanwhile, retail investment frenzy continues to be fuelled by large applications made by Qualified Institutional Buyers that are not backed with money. Retail investors who are part of the same IPO book are lured to invest by so-called ‘over-subscription’ within minutes of issue opening.  

Blocked out

The confusion over trading in Software Solutions India (SSI) after its demerger is forcing a policy rethink on imposition of trading price bands in similar situations. Usually, trading of companies going through a split or demerger is halted until they are re-listed as separate entities and there are no price bands on the first day. This happened Aptech/Hexaware, NIIT education/software and others. However, when SSI spun off a lucrative chunk of its IT Services business to Scandent Network, the original entity (now almost a shell) continued to trade with no-delivery period from October 12 to 19. Price bands were also kept firmly in place on the first day (October 12), with the result that the downward plunge was blocked at the lower circuit. Price bands were relaxed the next day and the scrip crashed 70 per cent from around Rs 166 to Rs 48. Why did SSI continue to be traded without a halt? Exchange officials explain that was because SSI, the original entity remained listed and in business. Officials, however, admit that the price-bands ought to have been relaxed on the first day, but vehemently deny any malafides in the late reaction. They say it was a learning experience and plan to put in place a system to avoid such situations in future. But although several investors are furious, there is no plan to cancel the October 12 trades, when an artificial filter blocked the fall.

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-- Sucheta Dalal