In the middle of the unhinged political gyrations around a logical decision to allow foreign direct investment in retail, what happens if a listed multi-brand retail company in India allows foreign institutional investment? It could be up to 24%, no questions asked. Of course, it would not open a board representation for the FIIs but they can jolly well keep on profiting from the listed company without any need to get their hands dirty. Would that invite the ire of the nay-sayers? Possibly, they won?t even notice.
This is one of the great reasons to keep the stock markets running in fine fettle in India. It is the only route except the wonder years of 2007 and 2010, through which foreign investment will come into India, though RBI may go blue in the face shouting it?s hot money. Which is why it is great to see the securities market regulator keeping its head down and getting down to the business of telling Indian companies how it wants the market to be run.
After many years of swinging on the will-o?-the-wisp that many of its chairmen fancied, the regulators have finally come up with a business plan. This is also why, in recent years, the only clear indictment for economic offences has come from the Securities and Exchange Board of India (Sebi). In the Satyam case, it is only the Sebi prosecution that has held up; the speed with which the Sahara case has moved is unheard of in the Indian prosecution of Ponzi schemes and the two OFCDs were not even listed entities, and of course Pyramid Saimira.
The prosecutions have, as I said, coincided with the period where the securities market regulator has begun to make a full-fledged overhaul of the market business rather than bring in piecemeal changes. Each prosecution is, therefore, the last link in a long chain that begins from the premise that the primary responsibility of the regulator is to protect the retail investor in the market.
So, when UK Sinha says he has increased the temperature of his investigation wing, it is worth noticing. Despite the shenanigans of the last two years, Sebi has managed to rap several FIIs and one leading Indian financial institution, too. The exercise began with CB Bhave but it is nice to see this move forward. Probably, Sinha?s Sebi could similarly pick up some issue managers, which offer, say, a R100 float for a company that shows a current turnover of less than R5 crore. It will help.
To say this was necessary is facile. Since November 5, 2010, when the market had last reached a peak till now, the Indian stock market has a lost market cap of R22.17 lakh crore. In the same period, about R1.45 lakh crore of FII money has moved out.
A large part of this is the global storm, but retail investors are often convinced some of it is the usual game stock market rogues play. This is the perception that clouds the image for others and makes the market thin. This lowers the interest level of foreign investors, too. Since, at the cost of reiteration, the only sure bet for foreign capital to enter India is this route, what Sebi does to make it function well is critically important. So, it becomes very important to note if Sebi and its chairman have a Weltanschauung to display.
That world view starts from the premise that the retail investment level in the market has become a trickle, both through subscriptions to primary issues and mutual funds. This has impacted the volumes for the institutional investors, too, domestic and foreign. So, allied with the drying up of global liquidity it has made the Indian markets very shallow.
The net impact is a market where confidence is at its nadir, the incentive for companies to float issues is, therefore, zilch and, as a direction-finder for the economy, the stock market has become useless.
This is risky. The global storm is not going to be a permanent feature. Already, global advisers are asking clients to pick up dirt cheap stocks of sound companies. Some are even going ahead to pronounce this decade as the one where stocks will be the financial instrument to buy. But they don?t have too much to say on the Indian markets.
Within India, however, the entire infrastructure story, including the urbanisation plans like the Delhi-Mumbai industrial corridor, depends on the stock market to respond. Possibly, even the retail revolution.
So, cutting out the crowd-pleasing remarks like the plan to rap companies if they are late in responding to the regulator, it would be great to walk along with Sinha, if he can find the right mix to make the primary issue market come alive.
subhomoy.bhattacharjee@expressindia.com