This year saw at least 12 companies--in areas as diverse as food products and housing finance--shift their focus of activity to the IT and software sector by changing their names. For example, Prashant Food Products & Holdings Ltd changed its name to Silicon Valley Infotech Ltd. Gurshant Motors has become Mini Soft Ltd, and Ganesh Management Services Ltd has transformed itself into GMS Computers (India) Ltd.

The Financial Express has complied a list of 12 companies which have changed their names in the last several months. The list gets longer every week. These outfits essentially want to cash in on the rage surrounding the IT industry in India.

Some of them have genuinely switched their main line of activity to take advantage of the software revolution, while some others, it is suspected, have gone for the name change withthe intention of tapping the stock markets. The fervour surrounding IT companies in the markets seems to have brought in some tangible benefits--the share prices (most of which are below par) of some of these firms have shown an upward trend in recent times.

The name change has attracted the attention of the finance ministry. Keen to prevent frauds--of the kind where promoters of so-called software companies slowly offload their holdings as share prices go up, or tap the market for fresh funds at huge premiums, and then disappear--the ministry plans to evolve a "watch" or "alert" system by which these companies are kept on a special monitoring list. The ministry is studying the possibility of amending the Companies Act, or the Securities and Exchange Commission of India Act to ensure that a company's name is allowed to be changed only after sufficient due diligence by the regulatory authorities.

The name change indicating a change of activity is expected to be allowed only after the switch has occurred.At present, a company is easily allowed to change its name when it announces its intention of changing its main area of work.

In the primary market today, the IT industry is the only sector in which ordinary investors have some faith.

The ministry is apparently keen to take steps to ensure that this trust is not misused. The modus operandi that is used by unscrupulous promoters is to cash in on the stock-market craze over IT scrips. A new name, linked to the IT industry, immediately evokes curiosity amongst investors. With some manipulative buying, the share price can be sent on an upward spiral. At this juncture, there are two options before the promoters--either to quietly unload their holdings in the market, or mobilise more funds at a high premium.

Ministry officials admit there are no laws by which these companies can be disallowed from tapping the markets. The entry barriers erected by the regulatory authorities are superficial, and can easily be circumvented. Fresh steps are required to ensurethat investors are not taken for a ride.