September 14, 2007

life in financial markets: what investors want

Last month, I contributed to Business World a story on how investor complaints against companies, like old wounds, are still widely prevalent in India's financial system. The story is given below.

What Investors Want

Its a revealing peep into retail investors minds. They can't complain about losses in equities if the market prices go down but surely do if they don't receive declared dividends. And if their investments in fixed deposits are not redeemed by companies they do raise a hue and cry – you will receive at least two complaints a day if you invite investors to email you. This is borne out of an analysis of one year's data of investor complaints received by a Ministry of Company Affairs-funded and Midas Touch Investors Association-operated (MTIA) internet-based informal service called

A first of its kind, this website had become operational on September 9 last year. In its first year of operations it has got 2,400 valid complaints against companies of which 950 were just for non-receipt of principal amounts and/or interest amounts in past cases of deposits with companies. About 430 investors said they were not receiving annual reports or annual general meeting notices, another 330 had not got shares alloted or amounts refunded in primary market issues and IPOs and about 250 claimed they were not getting dividends on shares they owned.

The depositors' grievances which formed the largest chunk mostly pertained to over five year old cases where companies were defaulting on principal repayments and interest payments (see table: 'Most complained against'). Around 30 such companies against which 663 investor complaints were received are undergoing judicial process involving court hearings or liquidation proceedings.

Most complained against:
Lloyds Finance - 313 complaints
Morepen Labs - 188 complaints
PAL-Peugeot - 69 complaints
DCM Financial - 45 complaints
Nagarjuna Finance - 39 complaints
Duncans Industries - 34 complaints
CFL Capital - 33 complaints
All the above are on non-refund of deposits

MTIA managers have got over 60% of valid grievances redressed. "The investor helpline service does not have legal power, yet the response from companies to redress the complaints was much beyond our expectations," says Virendra Jain, president of MTIA. The worrisome point, Jain found, was that there a little over 100 companies complained against came back undelivered because their names or addresses had changed and the BSE did not have their up-to-date contact information or status.

Shareholder complaints against listed complaints are actually supposed to be resolved by stock exchanges and Sebi but Jain says these are probably not given much importance by them. Depositor complaints lie with the RBI if the deposit taker is a NBFC and the rest lie with the Company Law Board (a judicial body set up under the Companies Act 1956). This is the reason for getting so many investors writing in with their grievances.

It also perhaps shows that helpline services are not only successful in social operations like child abuse, violence against women and suicidal tendencies among depressed persons but also for investors or depositors in the financial markets. At the same time, however, depositor complaints of the kind that got are legacy issues and will not arise afresh simply because there is very few companies who accept deposits from the public currently.

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