SEBI can't save you from this... - Views on News from Equitymaster

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SEBI can't save you from this...

Apr 7, 2010

The stock market regulator is playing on the front foot these days. This is with respect to the new rules it is enacting for the improvement in the equity culture of the country. It is doing this by forcing companies to be more proactive in dealing with investors. Just two days back, the SEBI had tightened the disclosure norms. It asked companies disclose their results within 45 days of end of a quarter. This is as compared to the flexible 30 or 60 day norm that has been followed till now. And which saw some companies taking endless number of days to come out in front 0f the investors with their quarterly performances. Indian listed companies would also be required now to disclose their audited financial statements within 60 days of every financial year end. Also, companies will now have to disclose their balance sheet and cash flow position within 45 days of every six months. It is of big importance. This is given that investors now wait for a full year to know the company's financial strength that is not really conveyed by the profit & loss account.

If this was not enough, the SEBI brought in a new rule for the IPO market yesterday. It is that from May onwards, all companies going for IPOs must get their shares listed within 12 days after the close of the offering, down from 22 days now.

All these new norms seem in the right direction. This is because these are intended to enable a more open relationship between companies and investors. But investors must still note that none of these rules or regulations can save them from the mistakes they commit while investing in stocks.

For instance, SEBI's decision to reduce the IPO listing timeline is seen by many as something that will lower the risks associated with investments in IPOs. This is if you see it purely from the point of view of listing gains. Often in the past, after the close of an IPO, market conditions changed drastically and at listing, IPO investors saw severe erosion in the value of their investments made just weeks ago.

Yes this rule can save you from drastic changes in the market conditions that can impact your listing gains. But it can't save you from the mistake that you may make by investing in the wrong kind of IPOs. We are no fans of investors applying to IPOs just for listing gains. The decision to invest in an IPO must be made using the same process that you use to indentify already listed stocks. Giving weight to the company's past track record, and its management credibility is of utmost importance. And if you go wrong on these, no SEBI rule can protect you.

Same for the new rules that have come up for the quarterly result announcements. While companies might disclose more to investors, please understand that it would be because they will be forced by law to do so. Many of them would not have the intention to reveal the true picture of their financial position.

Overall, while SEBI is a watchdog for the stock markets, you must not expect it to protect you from losses you might incur due to your own misjudgment in selecting stocks. The regulator might force companies to disclose more and disclose better, but it cannot help you fight a company or promoters that have the intention of running with your money. Remember Satyam?

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1 Responses to "SEBI can't save you from this..."

V.Balakrishnan

Jun 5, 2010

You are 100% correct that no one can save if our judgment on our investment is wrong.Since crooks are always manage and survive in the public investment field as there are ample chances to swindle money and go free technically.

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