'Need For Greater Interaction Between Sebi, Intermediaries
Business Standard: Sebi has initiated some confidence-building measures in the market and imposed more faith in merchant bankers. What impact will these changes have on the sagging primary market?
N K Parikh: There is a need for a psychological change to take place in the market. The investor must learn that it is not possible to double one's money overnight. There is a need for taking a long-term view of the market. The retail investor must understand that an investment in equity is a high risk investment though returns will be superior to that of debt. We need to develop a market where we will have more matured and qualified investors like venture capitalists and mutual fund managers picking up equity in a primary offering and then offloading it to retail investor when the companys project has begun.
The mindset of the retail investor needs to change here. The appreciation should not be calculated with reference to the par value of the share. Let the qualified investors who can assess the performance of the company and the feasibility of the project in a better way than a retail investor be allowed to take up equity initially. The retail investor can then be made an offer at a price of Rs 20 or so. There is no reason why the stock should not perform well in the secondary market if the project of the company is on the smooth track.
BS: Who can be considered as qualified investors ?
NKP: Venture capitalists and high net worth individuals can be considered qualified investors. There is a need to allow mutual funds to take part in these kind of deals. The equity can be initially placed with these 20-30 qualified investors. For small firms, there is a need to make underwriting compulsory. They will have to assess the company's fundamentals before making commitments.
BS: Marketmen say that a safe exit route needs to be provided to win back the retail investors confidence in the markets. What is your assessment of the state of affairs of the secondary market?
NKP: The secondary market does not have the support of the domestic institutions. Many stocks of good companies are trading at a discount to their book-value. Any intervention from institutions like UTI and LIC will have no significant impact on the market as FIIs are dominating the proceedings on the bourses.
The exit route that is being talked about can be brought about by either introducing market making exercise or providing buy-back arrangements. Fundamentally, there is nothing wrong with the economy and there is no liquidity problem.
BS: What role do you see for the regulating authority like Sebi in future?
NKP: Sebi has adopted a very positive approach towards the market. It does have the feel of the market. However, there is a need for greater interaction between Sebi and the intermediaries. The regulator needs to give more powers to self-regulatory organisations like Ambi wherein macro-management of the market can be done by Sebi with micro-management being left for the market players.