This refers to your edit on Volatile markets (Et, May 28). The stock market has been very volatile since 2008 for some reason or other and the investors particularly retail and small investors are the confused lot when to enter and exit the market.The global financial crisis emanated from US in 2008 has brought down the sensex from its peak and the present Euro zone crisis does not allow to give a lift to the sensex although the economy continues to perform well in all fronts except perhaps in containing the inflation.
Unfortunately our stock exchange operations are dictated by FIIs who move their funds globally for arbitrage operations and our players in the market have not developed any strategy to contain the FIIs dictats.The possible reason for such a state of affairs may be the large float of liquid shares with traders, brokers,mutual funds and institutions who invest in shares only from speculative angle and not necessarily as part of prudential management of their surplus funds. The holding of shares by retailers is insignificant and this is the major cause for unrestrained volatility in our stock exchanges. It is for authorities to initiate policy measures to strengthen the retail holding of shares at least at 25 percent if not fifty percent of the issued capital and encourage retention of shares by providing loyalty bonuses . Too much of speculation adds uncertainties and retailers suffer the most. STT can also be developed as a tool to prevent undue speculation.
Dr.T.V.Gopalakrishnan
Sunday, May 30, 2010
Stock Exchange for SMES
This refers to your edit A welcome move- Easier Listing for SMEs (ET Dt 21/05/10). While the measures relaxing the norms for listing of SMEs by the SEBI are welcome and encouraging, it would not be sufficient to give a boost to our SMES which have a great potential to support our economy in term of GDP growth, exports, employment and. distribution of wealth. SMEs deserve a special exchange to take care of their capital requirements, financial discipline, growth and contribution to the economy.
An exclusive exchange will help the investing public particularly retail investors As it is, retail investors keep themselves away from capital market as allotment through IPOs is uncertain to all applicants and operating through secondary market is costly,risky and often unaffordable. Volatilty is vey high these days in the capital market and it is risky for retail investors to operate in capital market. In case a separate stock exchange is created for SMEs the involvement of retailers will be very high and capital formation will be easier. Allocation to institutions like banks ,mutual funds and other investors can be earmarked keeping a larger portion for retail investors .Such an arrangement will give a boost to the SME sector .
Dr T.V.Gopalakrishnan
(An edited version of this appeared in Economic Times dt 24.05/10)
An exclusive exchange will help the investing public particularly retail investors As it is, retail investors keep themselves away from capital market as allotment through IPOs is uncertain to all applicants and operating through secondary market is costly,risky and often unaffordable. Volatilty is vey high these days in the capital market and it is risky for retail investors to operate in capital market. In case a separate stock exchange is created for SMEs the involvement of retailers will be very high and capital formation will be easier. Allocation to institutions like banks ,mutual funds and other investors can be earmarked keeping a larger portion for retail investors .Such an arrangement will give a boost to the SME sector .
Dr T.V.Gopalakrishnan
(An edited version of this appeared in Economic Times dt 24.05/10)
Tuesday, May 18, 2010
Regulate raters
This refers to your edit Reform Credit Rating( ET,May 15,2010). The rating agencies performance needs to be evaluated and an unbiased and fair rating of the industry, issuer of the product and the economyneeds to be encouraged. This is possible only where rating agencies are funded from a general pool and they are made accountable. The present system of funding by the issuer will have only biased rating and investors cannot trust fully on such ratings.
The general pool can be funded by investors as and when IPOS are open and alloted, Regulators like SEBI, IRDA, NSE and Stock Exchanges and by issuers of securities. Even a contribution from the Government as and when they raise funds from market through borrowings or disinvestment can be considered which will help to enforce transparability and accountability from the rating agencies.
The rating agencies' have to be evaluated by some regulator preferably by SEBI and the rating given to them need to be publicised. Even a recompense Clause can be thought of in case the rating agencies' rating shows drastic variance from actuals later on and they should be made to pay a penalty and this money should also go to the general pool. What is required is reliability in rating and the method of rating . This will ensure allround stability in financial market.
Dr.T.V.Gopalakrishnan
(An edited version of this appeared in ET dt 18/05/10).
The general pool can be funded by investors as and when IPOS are open and alloted, Regulators like SEBI, IRDA, NSE and Stock Exchanges and by issuers of securities. Even a contribution from the Government as and when they raise funds from market through borrowings or disinvestment can be considered which will help to enforce transparability and accountability from the rating agencies.
The rating agencies' have to be evaluated by some regulator preferably by SEBI and the rating given to them need to be publicised. Even a recompense Clause can be thought of in case the rating agencies' rating shows drastic variance from actuals later on and they should be made to pay a penalty and this money should also go to the general pool. What is required is reliability in rating and the method of rating . This will ensure allround stability in financial market.
Dr.T.V.Gopalakrishnan
(An edited version of this appeared in ET dt 18/05/10).
Thursday, May 13, 2010
Rain of Capital
Rain of Capital
This refers to your edit on Rain of capital( Business Line, May 11,2010). Compared to US economy, European economy and all other Asian economies including China, India’s position to attract capital from global investors is highly favourable, justifiable and logical.
There is political stability and the economy shows signs of high potential for fast growth, with booming confidence.
Financial system is comparatively sound and chances of its going astray are limited. Avenues are plenty for fresh investments and opportunities to develop and prosper are unlimited for overseas investors.
The economy needs heavy long term investments, technology and research support for development of its physical and social infrastructure. This is an ideal time to encash the goodwill the country enjoys.
It is the best opportune moment to remove all legal and administrative hurdles that prevent flow of funds. The inflows will have their own adverse impact on inflation and exchange rate but the long term benefits the economy can accrue should never be lost sight of while framing policies.
The economy is well placed to attract funds and that needs to be fully exploited.
Dr T.V.Gopalakrishnan
(This appeared on The Hindu Business Line on 13/05/10)
This refers to your edit on Rain of capital( Business Line, May 11,2010). Compared to US economy, European economy and all other Asian economies including China, India’s position to attract capital from global investors is highly favourable, justifiable and logical.
There is political stability and the economy shows signs of high potential for fast growth, with booming confidence.
Financial system is comparatively sound and chances of its going astray are limited. Avenues are plenty for fresh investments and opportunities to develop and prosper are unlimited for overseas investors.
The economy needs heavy long term investments, technology and research support for development of its physical and social infrastructure. This is an ideal time to encash the goodwill the country enjoys.
It is the best opportune moment to remove all legal and administrative hurdles that prevent flow of funds. The inflows will have their own adverse impact on inflation and exchange rate but the long term benefits the economy can accrue should never be lost sight of while framing policies.
The economy is well placed to attract funds and that needs to be fully exploited.
Dr T.V.Gopalakrishnan
(This appeared on The Hindu Business Line on 13/05/10)
Sunday, May 9, 2010
Need for a General Grievances Forum
Need for a General Grievances Forum
Of late, the markets are flooded with several financial institutions / companies and products and it is impossible even for educated people to verify the genuineness of the finance companies and the products they market.
There are some finance companies offering mutual fund products, insurance products, running chit funds and offering varieties of brokerage and other services in and around all cities.
Even many of the new generation banks offer varieties of insurance and mutual fund products in their premises. It is practically difficult to come out of a new generation bank without being trapped for some investments in their insurance/mutual fund products.
They have many subsidiaries operating from the bank premises and it is embarrassing to ask whether the subsidiaries are licensed or authorised to do business from bank branch premises.
As scams and frauds occur every now and then even in well regulated institutions / Companies, it is high time vigilance is kept on all types of finance companies and public are suitably warned from being duped. In the case of banks offering insurance products, it should be widely publicised by IRDA that what are the types of products they have authorised the banks’ subsidiaries to deal with and what type of charges they can levy from customers. It should also be made clear to the public that whether banks are offering the products or their subsidiaries are offering the products.
The extent of the liability that the bank bears on behalf of their subsidiaries also should be made clear to public before they are made to invest.
The canvassing of business keeping the image of the bank and that too in banks premises by banks own subsidiaries without making the charges transparent to the investors is nothing but trapping the gullible customers.
The finance companies / institutions should indicate their regulator and their full address in all their forms prominently for investors benefit when they canvass business.
The Reserve Bank and SEBI should also have the moral responsibility to bring to public knowledge in these days of liberalisation as to what type of products and what sort of control they have on various institutions they regulate and to what extent public are safe in investing their hard earned savings.
Similarly, IRDA has to periodically come out with the information relating to institutions dealing with insurance products, their collaborations, and the type of products and the general nature of risks customers have to understand, the charges to be borne by the customers and the lock in period of investments etc.
Several insurance products are in the market and they are all mostly marketed as investment products and customers are at a loss to understand fully what is in store for them till they get the policy and in case they take the pains to read the fine print.
Marketing has been aggressive these days by private institutions in particular and contacting persons in these institutions has been virtually difficult as the business is practically carried out virtually through computerised system and information technology.
The State Governments also should publicise once in a while the list of companies they have authorised to function and offer financial services. There should be a reference point for public to verify the genuineness of the institution and the products they offer.
A general grievances forum to refer cases of doubtful nature should be thought of jointly by all regulators for the benefit of public, regulators and institutions / companies as well.
The caution that Customers have to be cautious and the products they buy are subjected to market risks will not alone be sufficient to keep the institutions/ companies away from indulging in all sorts of marketing gimmicks and canvassing business.
The image of the economy, the regulator and the institution and ultimately the customer has to be well taken care of by proper rules, regulations and control.
The presence of Ombudsman who takes care of basically grievances arising from deficiency of service to customers may not be of much use in respect of issues referred to above.
Dr.T.V.Gopalakrishnan
( This Write-up appeared in Business Line dt 10/05/10)
Of late, the markets are flooded with several financial institutions / companies and products and it is impossible even for educated people to verify the genuineness of the finance companies and the products they market.
There are some finance companies offering mutual fund products, insurance products, running chit funds and offering varieties of brokerage and other services in and around all cities.
Even many of the new generation banks offer varieties of insurance and mutual fund products in their premises. It is practically difficult to come out of a new generation bank without being trapped for some investments in their insurance/mutual fund products.
They have many subsidiaries operating from the bank premises and it is embarrassing to ask whether the subsidiaries are licensed or authorised to do business from bank branch premises.
As scams and frauds occur every now and then even in well regulated institutions / Companies, it is high time vigilance is kept on all types of finance companies and public are suitably warned from being duped. In the case of banks offering insurance products, it should be widely publicised by IRDA that what are the types of products they have authorised the banks’ subsidiaries to deal with and what type of charges they can levy from customers. It should also be made clear to the public that whether banks are offering the products or their subsidiaries are offering the products.
The extent of the liability that the bank bears on behalf of their subsidiaries also should be made clear to public before they are made to invest.
The canvassing of business keeping the image of the bank and that too in banks premises by banks own subsidiaries without making the charges transparent to the investors is nothing but trapping the gullible customers.
The finance companies / institutions should indicate their regulator and their full address in all their forms prominently for investors benefit when they canvass business.
The Reserve Bank and SEBI should also have the moral responsibility to bring to public knowledge in these days of liberalisation as to what type of products and what sort of control they have on various institutions they regulate and to what extent public are safe in investing their hard earned savings.
Similarly, IRDA has to periodically come out with the information relating to institutions dealing with insurance products, their collaborations, and the type of products and the general nature of risks customers have to understand, the charges to be borne by the customers and the lock in period of investments etc.
Several insurance products are in the market and they are all mostly marketed as investment products and customers are at a loss to understand fully what is in store for them till they get the policy and in case they take the pains to read the fine print.
Marketing has been aggressive these days by private institutions in particular and contacting persons in these institutions has been virtually difficult as the business is practically carried out virtually through computerised system and information technology.
The State Governments also should publicise once in a while the list of companies they have authorised to function and offer financial services. There should be a reference point for public to verify the genuineness of the institution and the products they offer.
A general grievances forum to refer cases of doubtful nature should be thought of jointly by all regulators for the benefit of public, regulators and institutions / companies as well.
The caution that Customers have to be cautious and the products they buy are subjected to market risks will not alone be sufficient to keep the institutions/ companies away from indulging in all sorts of marketing gimmicks and canvassing business.
The image of the economy, the regulator and the institution and ultimately the customer has to be well taken care of by proper rules, regulations and control.
The presence of Ombudsman who takes care of basically grievances arising from deficiency of service to customers may not be of much use in respect of issues referred to above.
Dr.T.V.Gopalakrishnan
( This Write-up appeared in Business Line dt 10/05/10)
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