Buyers (be) aware! - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Buyers (be) aware!

Jun 18, 2003

Every now and then, we read about stock market regulators ordering a probe into the rise in prices of securities listed on the exchanges. Sometimes, an enquiry is set up for finding out the reasons as to why the stocks of a particular sector have risen rapidly within a short span of time. It is important for the regulatory bodies to keep a close watch on various securities so as to protect investor interests. But then isnt it strange? How could stock market gains hurt investors? The answer here would be - they can! Assume, one Mr. A has good sources in a company X and through them, this Mr. A has got access to some relevant information regarding the company which could affect the share price of the company on the bourses, positively or negatively. Now, he acts in the market on the basis of the news that is acquired from company sources, thus making the stock price of the company behave quite irrationally.

If the stock price rises, it is advantageous for the retail investor as he reaps windfall gains due to some reason about which he is almost certainly unaware. But sometimes, the greed factor creeps in, which many a times controls human rationale and prevents him from booking profits. At the same time, the opposite could also have happened wherein the stock price could turn for the worse and put investors in the lurch, not knowing a thing about the reason behind the strange movement in the stock. According to a poll conducted by in mid-May last month, over 1/3rd of the people voted for the greed factor. However, the key reason for stock market scams according to them was regulatory loopholes (48%).

This whole scenario of acting on unpublished company information, which is relevant to the value of the company and consequently its stock price, is called insider trading. This is precisely what the regulators aim at curtailing while ordering probes into the strange behaviour of stock prices. This close watch by the regulators is necessary in a scam-marred country like India. Insider trading leads to increased stock market volatility and hence greater risks for retail investors. This ultimately leads to investors losing confidence in capital markets.

The Ketan Parekh related scam caused a lot of heads to roll in the BSE. It also brought considerable embarrassment to the stock markets regulatory authority, Securities and Exchange Board of India (SEBI). Since then, the government has shown the inclination to improve systems so as to safeguard small investors. Some of them being laws on corporate governance, higher disclosure norms for companies, severe penalties for insider trading, rolling settlement and shifting the trading cycle from T+5 to the T+2 settlement system. Rolling settlements and a shorter settlement cycle effectively leaves very little time for speculators to affect valuation. Moreover, with the SEBI already making plans to introduce the T+1 settlement system, it is only going to reduce the risk in the market for retail investors. This step by SEBI is praiseworthy considering the fact that the US and UK markets are still following the T+3 system. Thus, going forward, one can expect market efficiencies to improve and the investors will be the sole beneficiaries. But in the end, buyers (be) aware.

Equitymaster requests your view! Post a comment on "Buyers (be) aware!". Click here!


More Views on News

It's Time to Book Profits (Fast Profits Daily)

Nov 27, 2020

In my first video on Equitymaster, I want to introduce you my proprietary greed and fear index. It's telling us to book some profits in the market.

Mirae Asset Large Cap Fund: Participating in High Quality Businesses (Outside View)

Nov 27, 2020

PersonalFN's analysis on the features and performance of Mirae Asset Large Cap Fund.

Create Wealth for Yourself in India's Drone Revolution (Profit Hunter)

Nov 27, 2020

The Chinese drone market is 14 times that of India's. Billions may flow into Indian drone companies too. Don't miss out on this wealth creating opportunity.

Two Very Important Updates For You (Fast Profits Daily)

Nov 26, 2020

In this video, I'll have an update for you on gold and the new member of my team.

Adani Green: A Future Multibagger or a Big, Speculative Bubble podcast (Views On News)

Nov 26, 2020

Rahul Shah discusses the hype around Adani Green Energy and analyses whether it is justified.

More Views on News

Most Popular

Not Infosys or Wipro. India's Next Wealth Creators Could Be Drone Stocks (Profit Hunter)

Nov 25, 2020

India's drones directorate signals the next big defence tech multibaggers.

Stocks that Could Shine More than Gold After Diwali (Profit Hunter)

Nov 17, 2020

If the markets become volatile over the next few months, do this.

How the New Margins Will Impact You (Fast Profits Daily)

Nov 25, 2020

The new rules on margins will come into effect from 1st December. Are you ready?

How to Build the Best Trading System (Fast Profits Daily)

Nov 20, 2020

In this video, I'll show you how to make the best trading system.

An Eraser and Some Pencils (The Honest Truth)

Nov 17, 2020

Ajit Dayal on the road ahead for the world after covid.


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Nov 27, 2020 (Close)