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K Seshadri
Sebi came out with a cautionary note to small investors during the week. What sense does this make?
The small investor surely needs protection. But he needed it all the time. In the hectic days of hundreds of IPOs, in the 1992 period, he needed it badly. Now, Sebi is investigating promoters who have disappeared and barring them from other company boards.
But all that is not going to bring back the money that the poor and simpleton investor was cheated out of in the name of economic liberalisation. Beware, Sebi has always said, then and now. But coming more specifically to getting ripped off in the bourses, the regulatory authority could have done much better in the BPL and Videocon cases, when the scam was actually unfolding.
It was clear even to a common man then, that BPL was going up consistently when the market was going down. Nothing was done to stop the spiral. I know of investors who have burned their money caught in the spiral.
Some of them have recovered them now at BPL counter, but whatabout who lost hope and took the losses? Sebi needs to do much better than merely putting up cautionary boards. The BSE did some, cautioning investors about fake infotech companies.
I do not remember to have seen any notice from Sebi too. I could have missed.
It is not too easy for the small investor to arrive at a judgment. Getting back to basics, the stock market is rising because the economy itself is seen to have entered a growth phase, albeit a modest one for now. Two-wheeler, trucks, cement, pharma, infotech -- are all moving up. This is but natural.
So what caution can anyone give to the small investor. Or for that matter, what indeed can even Sebi do?
Let me take the first case. The small investor would do a lot of justice to his money by sticking to mutual funds. That is because mutual funds can spread the risk, which an individual cannot. He could also refer to the mutual fund guide covered by FE Investor to choose the best fund to log with. But if he decides to foray into stocks alone, lethim know his risks. If he jumps into a racing stock, and has no yardstick to measure the price versus the fundamentals, he is asking for trouble. The first rule of the game is: Do not play anything which you do not know about. But markets are full of racing stocks.
In fact, speculators do get rich only at such times. They even organise themselves into cartels. If you still like to benefit by such rushes, enter with your eyes fully opened. But what Sebi can do is to follow up scrips which race up very fast. It is not impossible for the regulator to set up an internal control, where it can co-relate fundamentals to stock prices for its own understanding. Thereafter, it should follow up unusual cases in terms of who unloads at the top, even if the distribution is gradual. I agree that it is not possible to trace a broker who acquires gradually, but it is possible to locate him when he downloads. But all said and done, a creative broker cartel could still escape detection by organising its network.
The moralfor the small investor is: Run with the bull, but do not get too greedy and get out once you see the first sign of saturation. And do not get in once the price has already escalated. May be you are missing a gain, but quite likely, you are saving your hard-earned money as well. The best rule is `Buy sheep (cheap) and still deer (dear)'! That is the best protection.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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