Lost in the crowd

The small investor seems forgotten in the rush to please the small saver, the small borrower and the small entrepreneur

By Mohan Sule

The small man is drawing disproportionate attention of late. Ambitious programs have been formulated to woo the marginalised citizen. The zero-balance scheme has the icing of overdraft facility besides being the receptacle for cash to buy subsidised consumption items.  Life and accident insurance cover can be had by paying a nominal premium. The unorganized sector now has been offered the security of pension. The promise of universal housing by the time India turns 75 years is primarily aimed at those outside the mainstream. Electricity for all, to be a reality by 2019, is an important cog in the infrastructure maze besides road linkage that will aid urbanisation and draw attendant benefits.  A complex financial engineering exercise will excise the huge debt of state electricity boards to remove last-mile obstacles. Telecom companies have been asked to shape up so that connectivity remains clog-free. A roadmap has been laid out by the central bank for pass-through of interest rate cuts. If the small saver and the small borrower are sought to be protected, the small entrepreneur, too, is at the centrepiece of policy directives. Niche Mudra is refinancing loans to daily wage earners. Ease of doing business has become the new anthem. Transparency and stability in taxation are the conjoined twins on display. There is promise of eschewing retrospective changes. Harried bosses bogged down with inventories, excess capacity and slump in demand are soothed by talk of dethroning the adverse tax regime and lowering tax rates in lieu of exemptions. Permits to start business are being shaves or bunched under a single window.

Lost in translation of big ideas for the common man is the small investor. To be sure, the Securities and Exchange Board of India has been periodically updating and introducing guidelines to make the trading environment attractive and safe for the ordinary investor.  There is insistence on disclosures and transparency. The regulator has also been fairly active in banning companies from capital markets for sins of omission and commission. The new Companies Act has revised accounting norms and third-party transactions. The idea is that all price-sensitive information is in the public domain. Yet, investors, particularly the minority, continue to remain wary of companies, government and the regulator. The dominant feeling is that the big fish invariably get away. The dithering over the merger of scam-ridden NSEL with healthy parent FTIL has been exasperating. It is possible for investors to spot danger signals from financial numbers and qualitative information. The woes of Kingfisher airlines were not secret. The problems of capital-intensive companies such as engineering, procurement and construction players, miners or telecom services providers are widely discussed. Costly mergers and acquisitions have proved to be the Waterloo of many leaders.

Yet many events unfold unexpectedly. The depreciation of the Chinese currency created havoc in the emerging markets: importers and exporters to the giant economy. Hardly any one forecast the devaluation of the yuan twice over. Companies worldwide have the tendency to go belly up without warning. Overnight, Satyam Computer Services, among the top four tech companies in India, went bust after the promoter admitted to cooking the books. Enron and many other emerging companies and hedge funds, too, have collapsed without much ado.  How can minority investors’ interest be safeguarded in such instances? The bankruptcy bill pending in parliament will end the prolonged period of grief of the small shareholders as sick companies make the round of banks and the Board for Industrial and Financial Reconstruction. That’s about all as creditors will continue to have the first right on the proceeds from the sale of assets. The holding period to qualify for long-term capital gains was reduced to one year for equity to encourage retail participation but is three years for debt schemes. Probably the architects of the provision mistakenly believed that debt funds carry less risk and changes in interest rates come after long intervals and are secular. The agony of fixed-income investors as they waited for the US Federal Reserve to make up its mind is fresh. The stir created by the holding of paper of an auto ancillary maker that was downgraded has brought the focus on the dangers posed by competitive debt funds eager to offer market-beating returns. With global economies in a flux and different geographies taking varying views on interest rates, the volatility in markets hitherto considered staid and steady is bound to increase. The time has come to bring all investment instruments on par in their treatment of lock-in and tax rate.