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Fatal Regulation SENSEX 28659.06 NIFTY 8818.35 US$ R6s. 7.06 GOLD R3s. 0982 Type Stock Name 135.86 0.48% 42.45 0.48% 0.08 15 0.05% Mutual Funds Lookup ECONOMY CORPORATE MARKETS MONEY INDUSTRYType CToEmCmoHdity OPINION PHOTOS VIDEOS MAGAZINE MORE Search Home Business Today Markets Aug 3, 2014 Story Fatal Regulation Rules designed to protect the Indian investor are paradoxically destroying investor sentiment. Mahesh Nayak Print Edition: Aug 3, 2014 Tweet Share 0 Share Share (Photo: Reuters) For 18 months, the CEO of a Mumbai­based financial services firm has been struggling to open a reimbursement bank account for his maid. He has failed so far. The maid also attends college and the CEO has been paying her fees for the time being. But the maid, because of her disadvantaged status, is also eligible to get the fees reimbursed by the government. For that she needs to have a bank account to which the government can automatically transfer the money. "If I am not able to open a bank account for my maid due to the unimaginable paperwork involved, I wonder what will be the plight of others," the CEO says. Know your client (KYC) norms are so tiresome and complex that they make it difficult to open a simple bank account. "No bank managers wants to walk the extra mile to open an account of a customer who will not have more than Rs 500­1000 in the bank account," he adds. To meet KYC norms, one of the requirements is a PAN card and to get a PAN card one needs an address proof as the card is hand delivered. The problem is the maid doesn't have a permanent residence in Mumbai and therefore isn't been able to get PAN card.* Cut to Arun Kejriwal, an investor and market analyst, whio wanted to invest Rs 50,000 under the Rajiv Gandhi Equity Savings Scheme (RGESS) for his grandson. But he was not allowed to. Says Kejriwal, "As my grandson had a demat account, I was told he was not eligible. Without verifying whether or not he had ever held equities in the demat account, he was bluntly denied a chance to invest in RGESS." Interestingly Kejriwal's grandson was then only 28 days old. The family had opened the demat account on his birth as they had bought tax­free bonds in his name. It's not just banking or the equity market where over protection and regulation have killed enthusiasm. On July 7, 2014, the BSE Sensex touched a new all­time high crossing 26,100 points, but the fact is retail investors did not make substantial money. Nor have they benefited much from the recent rally which started after the new government led by Narendra Modi came to power. When the Sensex touched 5,000 years ago, brokers and distributors celebrated by distributing sweets and sending balloons in the sky. In the last 10 years transaction cost has come down drastically. India would be one of the best regulated markets in the world in terms of investor's protection, but the problem is you cannot find investors. India has × become a model market in terms of laws but nothing is happening in terms of prosperity. "Over­regulation has made the market unfavourable for investors. Why would someone come into the market as an investor when his interest isn't protected by ECONOMY CORPORATE MARKEtThSe coMmOpNaEnYy orI NthDeU rSeTgRuYlatoTrE,"C sHays OPINION PHOTOS VIDEOS MAGAZINE MORE Kejriwal. He adds, "Section 100 of the Companies Act has been a curse for the investor. It is often used for easing out minority shareholders. In fact SEBI has gone one step forward by allowing companies to squeeze out minority shareholders." Section 100 permits a company to extinguish capital. "In some cases the companies, after delisting, have increased the face value of their shares and canceled the shares of minority shareholders on the grounds that they have become fractional shareholders. What's LATEST MUST READ TECH NEWS disappointing is that no court or regulator Rupee reverses gains, can help these investors." slips 13 paise against dollar "No Indian investors and intermediary is making money. So even though the Sensex Flipkart crosses is above 25,000 I am not sure if retail milestone with 100 investors were on board and managed to million customers make a killing. I know for a fact that brokers are struggling and many have in fact RTI applicant faces Re 1 diversified into property broking," says ⎤ᗐne for seeking JNU research data Amit Maheshwari, Managing Partner at Ashok Maheshwary and Associates, a Delhi­ based financial consultancy and chartered accountancy firm. "Why would someone (any intermediary) invest when he isn't making enough money," says Nilesh Shah, Managing Director and CEO at Axis Direct. "Sebi has capped the broking commission for mutual fund that at a maximum of 12 paise for every Rs 100 value of transaction. This is too small a fee. If a fund manager can manage crores of rupees he can also be sensible in paying fees." He adds, "What Sebi's capping of the commission has done is that others are also paying low commission. Everyone wants five­star service at Udipi rates. That's not possible and therefore players are only servicing people who pay five­star rates. But this has destroyed the industry as not all are serviced and thus shunted the growth in the market," says Shah. "I agree that over regulation has not helped investors in creating wealth. The effect of over regulation is that our markets are not deep or liquid. See the bond market for example. In US, the bond market is three times the size of the equity market. Still, over regulation and protection not may not have helped in creating wealth at the same time it has not led to rapid erosion of wealth," says Maheshwari. A senior bureaucrat who has been in the finance ministry says on condition of anonymity, "The government doesn't really mind if Indian investors don't come into the market, but at all costs it doesn't want any mishap in the market which would require it to clear up the mess." "As a regulator my job is to see that investors have trust in the market and we at SEBI have taken reasonable measures to prevent any mishap," says UK Sinha, Chairman, SEBI. "Everywhere in the world the market has been revived on two counts. The first is tax support and the second is pension money. If similar support comes from the government we may see a revival in the capital market." Securities transaction tax (STT) when introduced in 2004 was reasonable, but over the years it has increased substantially. STT and stamp duty are the major costs. Currently STT in the cash market is levied at the rate of 0.1 per cent on both the seller and the buyer. On derivatives, the tax is only levied on the seller which ranges from 0.01 per cent to 0.125 per cent. "SEBI'EsC iOnNabOiMlitYy toC pOuRnPiOshR AthTEe guMiltAyR hKaEsT oSnlyM seOeNnE tYhemIN tDigUhStTeRnYing tThEeC HrulesO aPnINdION PHOTOS VIDEOS MAGAZINE MORE raising the entry barrier and restricting more companies to tap the equity market," says Shah. "From 1991 to 2014 so many companies including aqua marine, NBFC, IT and bulk drug manufacturers have disappeared after tapping the IPO market. This has been disastrous for investors." "The death of the IPO market is another reason for low number of investors in the market. New customers come in when there is a vibrant IPO market," says Motilal Oswal, Chairman and Managing Director at Motilal Oswal Financial Services Heavy Blow: Entry load was a small commission mutual fund companies charged investors. SEBI banned entry load in August 2009. This has seen a decline of investment in equity funds IPO markets cannot be vibrant till the secondary markets are vibrant. IPO markets are still some distance away from a proper revival. Making a business plan fund NEWS YOU CAN USE through the IPO is also getting to be a challenge as the present law demands Aviation authority says no to clicking implicitly secure and safe return for investor, fair pricing of shares and business pictures near aircraft delivery record. Hence, easy underwriting is not possible. There is no concept of What to do to if you own a Samsung official and realistic market making for all companies getting listed. This has also Galaxy Note 7 affected the investor sentiments. Says Shah of Axis Direct, "There have been so Pre-booking for iPhone 7 and iPhone 7 many companies whose shares after the issue were trading at a discount, why didn't Plus begins in India the regulator catch the company or the investment banker for over­pricing the BSNL all set to match Reliance Jio 'tariff- issue? Today the focus is only on information and it has made filing an IPO by-tarrif' cumbersome rather than focusing on growing the market and increasing retail Reliance Jio: SIM card, 4G plans, apps participation." At this juncture the IPO markets are mostly dry. One hopes that, if and more the secondary market continues to be buoyant, there could be a revival in the IPO iPhone 7 and iPhone 7 Plus Indian price market in the second half of this year through IPOs for ecommerce and PE invested list released ventures. Certainly a lighter and more pragmatic regulatory environment can boost the market sentiments quickly. Social News Business Today "In fact a dull IPO market does more damage to the economy and the markets than dull a secondary market," says C.J.
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