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SEBI's MF move to benefit retail investors: Religare Cap

Published on Thu, Jun 18, 2009 at 20:14 | Source : CNBC-TV18

Updated at Fri, Jun 19, 2009 at 10:48

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Amitava Chakraborty, Religare Capital Markets

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Nifty

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The Securities and Exchange Board of India (SEBI) has rationalised disclosure norms for rights issues. The market regulator has allowed investors to choose commission payable to mutual fund distributors and has cut fees for financial intermediaries by 50%. It has also approved the concept of anchor investor.

Commenting on SEBI's latest move, Amitava Chakraborty of Religare Capital Markets said the market regulator was looking at reducing the cost borne by end investors. "A 50% cut for distributors will help boost MFs reach among retail customers," he said.

Also Read: Sebi scraps entry load for MFs, cuts fees of intermediaries

Here is a verbatim transcript of an exclusive interview with Amitava Chakraborty on CNBC-Tv18. Also watch the accompanying video.

Q: How is this going to pan out and impact the market?

A: Clearly the regulator is looking to reduce the cost of the end customer or the end client or end investors. Basically, the regulator wants the retail investors to participate in the mutual fund (MF) market and invest. Hence, they want to reduce the cost and this is the way to do it, because 50% cut on all distributors will help the MF industry to reach the retail customers.

Q: Do you think that this would also perhaps mean that the changes for instance on easier disclosure norms-is this just a cosmetic change or will it actually make a substantial difference in terms of rights issues and the timelines that they take to be conducted?

A: For a rights issue, an investment banker has to file 600 page documents apart from fulfilling other formalities. I think cutting away all the paperwork substantially will help companies to raise the rights issue because anyway it is a listed entity, as in the same existing shareholders are subscribing to the rights. Thus, I think cutting down on that process, the timeline will help for the existing companies to raise right issues.

Q: Does it only favour one particular stock exchange-this move that unlisted companies will have to mandatorily list on a nationwide stock exchange, which has trading terminals spread across the country? What does it really mean for the overall investor community?

A: If you look at the bigger goal, it is to have the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) on the nationwide footprint. So, listing in those exchanges should be mandatory.

I think somebody getting listed in some of those regional exchanges will not be possible. So, either they have to fulfill the norms of getting listed in those national exchanges because then your listing as well as reporting criteria will be different if you don't list because currently we have over 6,000 companies listed but they are not traded.

So, there is no point in having those companies. So unless those companies fulfill the criteria of nationwide emphasis, don't list. That is the message that the regulator is giving.

Q: We also heard the SEBI Chairman talk about the fact that GDRs, ADRs that are held for over one year, can now be submitted in an offer for sale. There was earlier a restriction on this. What does it really mean? What sort of impact will this policy change have?

A: I have to see the finer details. It is not as easy as you are sounding it to be because there is a fungibility aspect also on the GDR/ADR to the domestic. But basically, if somebody (some big shareholder or a group) is holding a GDR or ADR outside, now they can also offload as an offer for sale when the domestic listing or offer is happening because many companies have actually done the ADR since till now that was possible. Though you don't have such things here but you can issue the shares outside India. So, offer for sale means those holders can offload now through a normal Indian listing.