Sucheta Dalal :FM's largesse
Sucheta Dalal

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FM's largesse  

May 25, 2003

Sometimes, government diktats lead to asinine results. Take for example, DSQ Software, which is one of the most notorious companies of Scam 2000. Its promoter Dinesh Dalmia has several arrest warrants pending against him. He and his companies have also been barred from accessing the capital market by Securities and Exchange Board of India (Sebi) and have had show cause notices filed against them by the Enforcement Directorate.


But look at what happens when Finance Minister Jaswant Singh decides to grant exemption on long term capital gains to 500 shares that form part of the BSE 500 index. A whole bunch of shady companies, such as DSQ Software figure in the list because they are in the august BSE 500. In effect, investors who traded in such notorious scrips will benefit from the FM’s largesse. But DSQ is not alone.


Keeping it company are notorious names such as Roofit Industries and its sister company Sun Earth Ceramics, which have cheated thousands of investors (The Indian Express has carried a detailed series on these two). The list includes all of Ketan Parekh’s favourite scrips of 2000 and big defaulters such as Vikas WSP, Core Health Care, Vinay Rai’s Information Technologies (India), Welspun India, Lloyd’s Steel, Balaji Distilleries and several software scrips known for rampant manipulation of their stock prices.


Interpretation problems


Sometime ago, following the recommendations of a committee, the Sebi prescribed the reverse book-building route to companies wanting to delist their shares. It was to allow minority shareholders a say in deciding the exit price paid by companies planning to delist. However, the process never got off the ground, and it was assumed that companies disliked a system that empowered investors.


A leading investment banker seeking clearance for two delisting proposals has a different story. Apparently, the delisting process is at a standstill because Sebi officials are not quite clear about what the rules are. While the committee envisaged a system where incumbent management could offer to buy back all outstanding shares through the reverse-book building route, irrespective of their holding. But Sebi officials insist that reverse book-building can only be used after management holding goes up to 90 per cent. Until then, say the officials, companies have to enhance their holding under the provisions of takeover code such as creeping acquisition or an open offer. Ironically, delisting committee was set up precisely to end the confusion over what regulation applied to share buy-back offers. May be Sebi needs to set up another committee to interpret the recommendations to its officials.


Focus on mutual funds


After having unearthed a spate of corporate scandals, American investors and regulators have now turned their attention to cleaning up mutual funds and their practices. The Securities Exchange Commission has turned the spotlight on how brokerage firms are selling mutual funds.


The regulator is probing undisclosed ‘special incentives’ offered by mutual funds to peddle certain schemes to investors. Market insiders say that such incentives are also rampant in the Indian market.


That’s why certain schemes are highly recommended by brokers to gullible investors. But that is not all. A lawsuit has been filed in the US against UBS Asset Management and Alliance Capital Management to expose the lack of independence of their boards.


The suit alleges that although the rules impose certain fiduciary responsibilities on independent directors of mutual funds under governance rules, in practice they ask no questions and provide no inputs at board meetings.


Yet, according to Forbes magazine, the directors allegedly take home $10,000 per board meeting at UBS, with a minimum payment of $2,500 per hour plus a $50,000 annual retainer.


Invading privacy


You may have ordered a solitary pizza or filled out a restaurant suggestion card after a nice meal, but now you’d better watch out! You may just have let yourself in for incessant harassment by Direct Sales Agents (DSA) hawking insurance, housing loans, credit cards or car finance.


Those very companies that seek your ‘valuable comments’ or your patronage do not feel obliged to respect your privacy and sell your phone number to anyone willing to pay for it. For instance, Domino’s pizza has sold its customer list to ICICI Prudential insurance as a part of a joint promotion deal.


The insurance company then adds insult to your injury by calling you’re a ‘preferred Domino’s customer’, when the only preference that the pizza company has ever shown is in selling your phone number and subjecting you to pesky sales calls. But don’t look for any regulator to check this invasion of privacy unless angry consumers initiate drastic action such as litigation.

(25 May 2003)


-- Sucheta Dalal