As a result, the odd-lot counters of brokers and other institutions have witnessed a 100 per cent plus jump in business in the last a few months. ``Now there is compulsory demat trading in several shares. Small investors who hold 50 shares of Reliance or 100 shares of Tisco are finding ways to avoid depositories. They feel it's not worth the trouble of joining a depository participant (the intermediary between the depository and the investor) and pay money for small shareholdings. Another reason is the delaying tactics of companies and registrars to register the transfer,'' said a dealer who is now involved in a thriving business in odd-lot shares.

TheSecurities and Exchange Board of India (SEBI) has added another 40 scrips to the compulsory demat mode, thereby taking the total to 104 scrips where share transfer will be only in the demat form through the depository instead of the physical transfer. For institutional investors 360 scrips are traded only through the depositories (National Securities Depository promoted by the NSE and institutions and the newly formed Central Depository Services promoted by the BSE). While the SEBI had claimed 7.17 billion shares with a market value of Rs 1,06,00 crore had been dematerialised so far, the number of small investors who hold demat shares is really small.

While foreign investors and big domestic funds have benefited from demat trading, investors who hold small chunk of shares are avoiding depositories. The only option for such investors is to sell their shares at the odd-lot counters of brokers. Following representation from stock exchanges and investors, SEBI had allowed small investors to sell up to 500shares (which have already come under compulsory demat mode) through the conventional physical transfer for a particular period. ``Small investors, especially in small towns in different parts of the country are dumping their holdings. Many of them hold 50 shares or 100 shares of such demat scrips,'' said a dealer who has opened offices in several other cities.

There is a general misconception among small investors that routing shares through the depository is a costly affair. Besides, they're worried about opening an account with a depository participant and are ignorant about the benefits of going to the depository. ``The belief among investors is that it's not worth going to a depository for 50 shares of Reliance. So they unload it at the odd-lot counter at a discount of around 10 per cent. Many investors are not aware that custodial charges at NSDL are only 0.01 per cent of the value of the shares,'' said the chief of a depository participant.

As a former chairman of a financial institution pointedout, the emerging situation has wider ramifications and acts as a hurdle in spreading the equity cult across the country. Small investors are considered as the pillars of the Indian capital market. For example, Reliance Industries alone has over 22 lakh shareholders and most of them are small shareholders who hold not more than 100 or 200 shares. Many brokers who're collecting such shares from small investors are making a killing. After burning their fingers in the public issue scam in 1994-96 and considering the volatility and shallowness of the Indian market, it is unlikely that these investors will re-invest the money in other shares. Another aspect which is annoying investors is that when they do join depository, it takes the normal time span of 3 to 4 months to get the shares immobilised and transferred to the depository.

With the depository system having made significant advances, SEBI should ensure that small investors also get depository services without many hurdles. If the regulator can create asituation where small investors benefit most from the depository, the capital market will take a giant leap forward.