FROM BUSINESS WORLD OF 6 MAY 2006
The crazy
croupier
I wish I were a
robber. Then I would rob people of just enough to start a mall – the world’s
biggest, best, busiest mall called public issues mall. The companies that set
themselves up in the mall would be required to cover its entire floor with
1000-Rupee notes every morning. Shoppers – to give them cache, they would be
called investors – would be allowed to enter and take away the notes. They may
enter for a short while every day and take away a note; but they must not take
more than one note. If they want to take more, they will have to join a club I
shall start, called Qiihni Club. Once they have joined the club, they can rob
the mall any time they like. Companies will be required to make sure my friends
get 85 per cent of the loot, but will be allowed to choose which of them gets
how much.
I might have a
certain problem; the unlicensed retail investors may take more than one note;
some may even bring a gunny bag and stuff it with my notes. So once in a while,
I will catch a few of them, lock them up, beat them up and warn them against
ever coming to my mall again. Next day, business as usual. What, then, is my business?
Enriching my friends, with a few lollipops for the riff-raff to make myself
popular. And what would I call my enterprise? Sebi, what else?
This may sound a
preposterous parody; after all, Sebi is a worthy official institution charged
under an act to protect investors in the capital market and manned by officials
from income tax, customs, excise, narcotics and etc; how can it even be
imagined to act in such an outrageous manner? Let me establish a correspondence
step by step between my behaviour as described above and Sebi’s.
First, the
1000-Rupee notes. According to Sebi’s own order WTM/GA/60/ISD/04/06, investors
in IPOs got the following percentage rates of return on their investments in one
or two weeks on the average: FCS Software 258, Dishman Pharma 209, Nandan Exim
151, IDFC Investsmart 104, NTPC 83, Sasken Commtech 78, IDFC 49, IL&FS 48,
Yes Bank 35, TCS 16. The return fluctuated. But on average they could have made
at least 50 per cent per issue; and if they applied for half a dozen IPOs in a
year, they could have quadrupled their money. It would be difficult to find a
more lucrative business. This is an equivalent of my mall strewn with
1000-Rupee notes.
For all these
years Sebi never bothered to catch retail investors who made more than one
application. And the same outrageous returns were earned by qualified
institutional investors and high-net-worth individuals – the equivalent of my
club members – but for Sebi that was quite all right. Are profits good when
made by QIIs and HNIs and immoral when made by Rupalben Panchal? Sebi says so,
and who can question Sebi’s judgment?
Sebi might argue
that Rupalben sold off immediately after public issue, and its favourite QIIs
and HNIs did not. They may have; Sebi has chosen not to find out, so it does
not know. And even if they sold later, they could have made fat profits.
Sebi got a
sudden attack of self-righteousness, and uncovered the multiple application
racket, first in Yes Bank and IDFC issues, and now in many issues between 2003
and 2005. Why was it stricken? Presumably it heard rumours of multiple
applications. But why has it not heard the rumours I have been hearing for
months – that QIIs give kickbacks to IPO registrars to get allotments, and that
the latter have been giving kickbacks to officials of Sebi who were in the know
to keep their mouths shut? It is interesting how selective Sebi has been in its
targets.
It has been
reported that the finance ministry has been pressing Sebi without avail to
abandon its present rationing of IPOs and to replace it with an auction process
that would lead to price discovery. Sebi is extremely reluctant. Is it any wonder?
And what
argument will Sebi put forward? I bet it will be pleading for the fictitious retail
investor, who needs to be attracted into the capital market to increase
liquidity, and who, the small, poor, hapless fellow, deserves to share in the
goodies that go predominantly to the QIIs and the rich. The same racket
flourished until we in the finance ministry abolished it in 1992; I have heard
the same arguments for it ad nauseam at that time. It makes no difference
whether an industry is controlled by a ministry or a regulator; either is
available for capture by racketeers masquerading as do-gooders.
