Panchu Mittir’s primary market rues

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Sunday , March 16, 2008 at 2320 hrs Professor Panchu Mittir, when I met him last, rued some undesirable developments in the Indian primary market over the past six months. He thought to himself that if greed—unconscionable, unbridled or enlightened—and fear are the two driving forces of all financial markets, then cyclical excesses are bound to arise from the interplay of these forces. The Indian primary market is only displaying this inherent vulnerability of all financial markets.

But who is Panchu Mittir? Panchkadi Mitra, as his actual name goes, is a retired, kind-hearted, septuagenarian professor of economics at a well-known Kolkata college. He lives with his wife in his old ancestral house at 92/1/A Chaku Khansama Lane in Central Kolkata, and is in possession of a brilliant mind, a ultrathin Macbook (a gift from his Harvard-educated-Wall-Street-investment-banker-son), a collection of about 3,000 books, Birbal, a russet brown cocker, and a violin gifted to his father by Nandalal Bose. He has an abiding interest in the stockmarket. But he is not a Ben Graham, nor are his investments very large. But he has stayed with them for years.

Having been a stock investor for over four decades, Panchu Mittir has seen it all—the good times and the bad. But he is disturbed by the rise of the illegal grey market, and does not rule out a covert role of issuers and investment bankers in encouraging it. The context now is almost a flashback to 1994, when new issues commanded large premia in the grey market.

Being a professor of economics, Panchu Mittir knows that all unlawful markets arise because of official markets’ inability to fulfill an economic need. Rationing, price controls or legal restrictions give rise to black markets. Similarly, grey markets in foreign liquor, perfumes, cigarettes and electronic goods exist when there are no authorised distribution channels for these goods, or if there are, because of duties, the price differential between the original and imported price resulting in arbitrage opportunities. Freer imports tend to eliminate grey markets. Panchu Mittir feels that a similar approach would help in curtailing the IPO grey market.

Panchu Mittir had studied the IPO market internationally. He knows that in many European countries like Germany (Neur Market) and the UK (London Stock Exchange), grey markets are permitted; there are also legal “when-issued markets” in government securities. But in India, they are illegal.