The Hindu Business Line : SEBI moots watchdog for investment advisors

The proposed move of The Securities and Exchange Board of India (SEBI) to create a private sector self-financing regulatory organisation (RO) as the first level regulator for investment advisers that include banks, chartered accountants, certified financial planners and the media (electronic and print), should be welcomed.

At present, self-styled financial investment consultants offer advice to their clients by regular newsletters and e-mails in managing their investment portfolios. The business dailies and journals also publish investment advice based on their own research for the benefit of their readers. The regular columns of Business Line such as Market Watch, Young Investor, Mutual Funds, and so on, are very popular among its readers and they help in investment decision making.

In such a situation, SEBI should see to that the proposed RO does not interfere with the functioning of the media (electronic as well as print) as it may constitute denial of freedom of the press. It should also be ensured that the public is not unduly charged for its services.

S. Nallasivan, Tirunelveli

The securities market has been evolving over the time and SEBI has taken many initiatives to make it more transparent. A segment of the so-called investment advisors certainly are playing havoc with the hard-earned money of the gullible investors, by making all kind of calls. There should be certain checks and balances on them. SEBI's initiatives are in the correct direction and it needs our support.

Krithivasan, e-mail

SEBI's move for a watchdog for investment advisors does not appear to be necessary and may not be practical also. Investors show their own preferences in selecting consultants. Regulation cannot bring accountability on advice and SEBI should not interfere.

A. Jacob Sahayam, Thiruvananthapuram

Only a Regulator can track fund-flows from FIIs into stocks of loss-making companies or those whose net-worth is eroded, and whether the flows are at the behest of local investors, who may be misguided by investment advisors (including brokers).

Investment advisors are largely responsible for the sudden spurt in penny stocks whose share prices increase by eye-popping percentages up to hundred-fold. These firms, often with zero net worth, appear on the scene after being in hibernation for 3-4 years. Equity deals are struck because of the `valuation mismatch' between buyers and sellers. Unusual overheated premiums, as large as 100 per cent, are quoted for a less than 5 per cent stake.

There is a real estate boom happening all over the country. As yields in the real estate sector, especially the commercial segment, exceed most other investments, investors are keen on sinking their teeth into the real estate pie. Real estate stock prices drive the prices of many other stocks to unreasonably high levels. And the managements of some of these companies themselves acknowledge that the valuation of their shares is too high. The envisaged Regulator will be able to frame guidelines for the orderly implementation of the SEBI (Disclosure and Investor Protection) guidelines 2000.

T. S. Sundareswaran, New Delhi

Responses to Sticklish Issues dated March 26.

The fallout of the debacle of the Indian team in the World Cup on the advertising plans of companies highlights the importance of operational risk management. An effective solution to risk mitigation is diversification. Companies need to ensure that no single advertising campaign constitute more than a set percentage of their annual advertising budget.

In the present case, TV channels refused to refund the companies who wanted to pull out their advertisements. This development may make advertising contracts more flexible in the future. Sponsorship may be made conditional based on the programme crossing a threshold TRP level or based on performance of the team or an individual in a sporting event. The TV channels can then charge a premium for providing this flexibility.

P. H. Karthik, Mumbai

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