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Buyers Beware! - Views on News from Equitymaster
 
 
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  • Apr 3, 2001

    Buyers Beware!

    Well, that's the one lesson investors ought to have learnt by now. It is us who have to establish the veracity of market movements. If we fail to identify a fraud, as now, the fault is ours. Why did we in the first place contribute to the buying frenzy? And if we can identify a genuine market movement, the winnings, rightly, are for us to keep.

    But then why do we need a regulator?

    Given our past experience, the presence of a regulator has not reduced the frequency of the ‘scams’. Indeed, scams are now becoming more sophisticated, involving more people and probably more money.

    The primary role of regulators should be to protect the interest of small investors. In India, sad but true, regulators have time and again failed to protect the small investors from the manipulative ways of a few large stock brokers/investors. Only lip service is paid to the small investors, even as large investors, time and again, make away with large ill-gotten gains.

    Take a look at this current development in the stock markets. We have a person who has borrowed money and punted on the stock markets. Indeed he has lost a big packet and is in default. He is now under arrest as the bank concerned has complained. Then there is a set of people (the bears) who have been hammering down shares on alleged ‘inside’ information. This set of people is still ‘free’. The total number of people in this bull-bear game will at most be a few. The entire government, all the regulators and even the CBI are focused on these few people.

    Not one of them i.e. the government, Sebi, CBI et al has given any thought to the 20 m other investors who have been robbed of their money. Their loss has been taken for granted. What makes the bank so special? Just because the bank is a corporate entity (or a PSU) should it have access to redressal?

    We need a regulator. Our regulator.

    A regulator that is independent, free from the control of the ‘babus’. A regulator that will take up the cause of the small investor. A regulator that will penalize punters who adopt unscrupulous means.

    Sadly, in India, nothing comes close to what we want. Agreed, Sebi has done a great job. But, after having witnessed several scams (1992 - Harshad Mehta, mid 1990s - NBFCs and countless other smaller scams), it has still not been able to act proactively. If this is the price investors need to pay for experience, then, it is not a fair deal. Given that Sebi may have acted the way it did due to other pressures, but then the bottomline is that we have been duped… again.

    There is no reason for us to believe that Sebi will emerge stronger from this scam. It hasn’t over the last few, then why should there be any difference now? But, then there is nothing wrong in hoping that sense will prevail over our decision makers. Until then, beware of what you buy?

     

     

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