Policymakers in the financial sector sure have a thing or two to learn from the Sahara group. Here they are, trying every trick in the book to make small investors take to shares and bonds and not succeeding even a bit. The Finance Ministry has offered tax breaks on equities and discounted prized public sector stock. The Reserve Bank of India (RBI) has pushed banks to serve up no-frills bank accounts. The Securities and Exchange Board of India (SEBI) tried everything from minimum public shareholding to electronic IPOs to woo small investors.
But they have ignored all this and poured money into gold and property instead. The number of demat accounts has not moved past the two-crore mark for two years now.
Meanwhile, it transpires that the Sahara group has managed to mop up nearly Rs 20,000 crore from over two crore investors with its home-spun ‘optionally fully convertible debentures’. It has been able to do this without the benefit of any expensive investment bankers, road shows or public filings. The group claims this was all due to untiring efforts of its 10-lakh strong field force. But the Supreme Court has taken a jaundiced view of the matter and asked the group to refund the entire money.
That’s an opportunity for the policymakers. Forget tax breaks and e-IPOs. Just hire Sahara’s field force and get financial inclusion going!
What frills?
While on the subject, SEBI has come up with an intriguing idea in its pet project of bringing back retail investors. Go the RBI way and ask intermediaries to offer no-frills demat accounts.
But wait, what frills did a demat account offer in the first place? Well, apparently the demat account is not just a dull account that houses your shares and bonds. It does offer frills.
One is the accounts statement that you receive every quarter listing out your holdings. Another ‘frill’ is the account maintenance charges that your depository slaps you with every year. SEBI plans to do away with both. The no-frills account will not send you any quarterly statement, if there are no transactions in the account. And if you promise to hold only securities worth Rs 50,000 in your no-frills account, there will be no annual charges either.
But will these sops make investors pull money out of their mattresses and take the stocks plunge? Well, that is akin to splurging on diamonds because someone gave you a Godrej locker for free.
Where are the QFIs?
Who wants foreign institutional investors (FIIs)?
Qualified foreign investors (QFIs), or foreign retail investors, are simply waiting to invest in Indian stocks and bonds. Or at least that’s what the Finance Ministry officials told us, when they opened up this new route for foreign investments. Sums of $50-60 billion waiting in the wings were hinted at after officials did road shows in the Gulf. Now it transpires that QFIs haven’t flocked to the Indian stock market quite as quickly as everyone expected.
Data released last week show that these investors have so far put in a ‘vast’ sum of Rs 37 crore into Indian stocks. This at a time when FIIs have been particularly obliging, bringing in Rs 52,000 crore so far in 2012. The officials reason that complicated know-your-customer requirements and withholding tax on capital gains are holding back QFIs. But with the economy bent out of shape and corporate profits still floundering, it is not clear why anyone should queue up to buy India at this juncture.
(This column will look at the lighter side of market events every week.)
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