INSUBCONTINENT EXCLUSIVE:
By Dhirendra KumarStock investors are in a tizzy because of the Karvy scandal
Equity investing in India is difficult enough without worrying about whether the broker is going to take possession of your stocks, sell
them off and appropriate the proceeds
According to the conclusion that a Sebi investigation has come to, that is exactly what Karvy Stock Broking did with several hundred crore
rupees worth of shares that belonged to its clients
business.
Going by what Sebi has found, it seems to be a particularly brazen and large scale heist, in all likelihood the largest ever
malfeasance of this kind in the Indian equity markets
As time goes by, the average of everything gets closer to the mean, while the extremes get more extreme
Every once in a while, one will get the largest this or that with some regularity.
However, what is truly galling about this scandal is that
it is composed of individual actions that the perpetrators had the right to commit
Only when the end-results were detected by the victims did the fog started to clear and that took a long time
The strange thing, which everyone in this industry as well as the regulator seems to have accepted, is that it is impossible, in practice,
experience of this just a couple of years ago when I started looking for a brokerage account where I did not have to sign over such a power
After wasting a lot of time skimming over literally hundreds of pages of legalese in tiny font sizes, I realised that this was basically
impossible to have such an account and use it in a practical sense
happens, such an arrangement is necessary if you are a short-term punter and are trading on margin because then the broker needs to be able
to sell off your investments without your consent if necessary
However, that is not the universal case
A lot of investors, like me, are just interested in buying stocks and holding them for months and years
Personally, most investors I know and who use Value Research Stock Advisor are exactly this category
Sebi should seriously think of ensuring that such investors are able to retain the rights over their investments
For brokers, such investors are useless businesswise because they hardly ever trade
Since such a thing is possible, it must be happening at a smaller scale elsewhere too
carefully and ensure that investors get their money back quickly
Investors participate in the market with the knowledge that no matter what happens to the value, equities is the most liquid of all asset
classes, and that there is an elaborate regulatory structure to ensure that
What we are seeing is a tough test for that regulatory structure
As much as recovering the money, equally important is the setting of an example
A crisis is always a great opportunity
Unless this issue is closed with punitive measures that are truly strong enough to put the fear of god into anyone else who might be tempted
to do the same, this crisis will be wasted.
(Author is CEO, Value Research)
