Mumbai: India’s stock markets are becoming better regulated and safer places for investors if the number of complaints filed with the stock market regulator, the Securities and Exchange Board of India (Sebi), is any indication.
In 2006-07, Sebi received only 26,473 complaints, down from a peak of almost 600,000 complaints in 1993-94 and almost 100,000 complaints in 1999-2000. These numbers are particularly significant because they come at a time when more companies are tapping the market through initial public offerings (IPOs) or follow-on public offerings.
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In 1999, 20 companies raised Rs388 crore from the market. In 2007, 106 companies raised Rs48,329 crore.
The two sets of numbers (on complaints and money raised) are not strictly matched because one is for the fiscal year and the other for the calendar year, but they do indicate the larger trend of more money being raised from a market that is becoming increasingly safer for investors.
Sensex, the benchmark index of the Bombay Stock Exchange, rose 45.51% in 2007, on top of 46.82% in 2006 and 40.70% in 2005. Rising stock prices have encouraged more firms to list on the bourses and more investors to buy stocks. Over the past three years, 265 public issues have raised more than Rs85,300 crore from the market. According to New Delhi-based Prime Database, a firm that studies the primary market, as much as Rs75,000 crore could be raised from public issues in 2008.
Since 1992, when Sebi was set up, it has received more than 2.9 million complaints from investors—around 500 complaints a day. According to Sebi officials, most complaints have to do with IPOs.
The decline in complaints also does not have anything to do with the regulator’s ability to address them—typically, when there is no redressal, the complaints taper off because investors know they are of little use—because Sebi’s strike rate (or the efficiency of redressal) has increased from 21.61% to 94.28% on a cumulative basis. That means the agency has addressed 94.28% of the total complaints filed since 1991-92.
“Sebi has streamlined the procedures of (making) public issues and now on a weekly basis we look into complaints related to a particular issue. In case we find a large number of grievances, we call the company officials and ask them to immediately address the complaints,” said R.K. Nair, executive director, Sebi. Complaints related to IPOs are usually settled within five days, he added.
Investors are guarded in their response when asked about Sebi’s ability to address complaints satisfactorily. “If the complaints are against companies, there is a quick response from Sebi. However, when they are against brokers, especially in relation to futures and options transactions, where investors had given power of attorney to brokers and suffered a loss, Sebi has been unable to proceed fast in redressing grievances of investors,” said A.K. Narayan, president, Tamilnadu Investors’ Association.
Typically, 30% of the shares on sale in a public issue are reserved for retail investors. If the response from retail investors is high, then they are not allotted as many shares as they have applied for. In such cases, firms floating IPOs are required to return the money to the investors within 15 days from the close of the issues. Most of the complaints relate to either allotment of shares or refund of money on time.
Complaints are filed with Sebi’s office of investor assistance and education (OIAE). According to the regulator’s 2006-07 annual report, Sebi resolved 68% of the complaints filed in that year.
Sebi’s investor assistance cell takes up grievances related to issue and transfer of securities and non-payment of dividends with listed companies. Sebi also looks into complaints against various intermediaries registered with it such as brokers. Investors can file their complaints at the Sebi headquarters in Mumbai, or regional offices in New Delhi, Kolkata and Chennai, mail them in to the regulator, or send them through the agency’s website at www.sebi.gov.in.
After IPOs, “vanishing companies” attract the maximum number of complaints. Companies that do not comply with listing requirements of the stock exchange or registrar of companies for two years and are not present at the registered office at the time of an inspection by the stock exchange are termed vanishing firms. These firms raise money through public issues but disappear soon after, leaving investors in the lurch. The ministry of corporate affairs has initiated action against 111 vanishing firms across India.
Rachna Monga contributed to this story.