Rematerialisation An Escape Route For Investors?

In what could be termed as a blow to the process of dematerialisation, a depository participant - Standard Chartered - at the behest of its client Jet Age Securities last week decided to go in for rematerialisation of about 52,000 shares of ICICI.

Though investors have the option of keeping the shares either in physical or electronic form, the fact that the rematerialisation has taken place, goes to show that there is inadequate liquidity for investors in the new system.

CB Bhave, managing director, National Securities Depository Limited, is unperturbed. 'The law provides for an option of rematerialisation to investors. When a request is made for remat we cannot question the investor for the reason to do so,' he quipped.

 

Market opinion is divided as to whether the option of rematerialisation should be withdrawn once the investor goes in for dematerialisation of his holding.

Says Aswhinikumar Maslekar, chief dealer, SRF Investcare: 'The decision by one of the investors to rematerialise 52,000 shares of ICICI is a setback to the concept of dematerialisation. However, it is a minor one. Given the prevailing illiquidity in the depository mode of trading, one may see few more instances of this kind in the near future.'

Ashith Kampani, head of equity dealing, JM Share and Stock Brokers, is more vociferous in his demand for making dematerialisation a one-way process: ' If investors are given the option of dematerialisation, chances are that the depository concept will take a longer time to catch on. More investors would opt for rematerialisation citing reasons of illiquidity. But if existing investors move out of the depository, how can the system ever attain liquidity.'

Ajay Pancholi, manager, operations, ICICI Brokerage Services, feels that a patient approach has to be adopted to popularise dematerialisation. 'At no point of time should the dematerialisation process be made a one-way process. The option to rematerialise will encourage retail investors to experiment with the depository system,' he added.

'In the initial stages, the investor has to be given the option of rematerialisation. This will provide an escape route in case the investor is not satisfied with the depository system. But once there is sufficient liquidity in the dematerialised segment, the entire process of dematerialisation should be made a one-way process,' stated Malsekar