Squeezing the Mutual fund industry for regulation

 

 

Millions are spent on Dalal Street to know just o ne thing-where will the market move from now on? Be it speculators, hedgers, market trackers, fund managers or analysts, they always stay vigilant to assimilate even the slightest of information that could help them to stay ahead of the herd of investors. Despite, movement of bourses have always baffled even the shrewdest of them all. Conclusion: It is really impossible to predict market movement with accuracy. But interestingly, now the market regulator seems to have acquired this trait. And, no doubt, the result is equally baffling for the industry players. Market regulator is constantly stunning the capital market with its unpredictable moves, making hard for the industry players to tweak their business model very often in order to stay afloat. So much so that you should not wonder if soon someone finds a business opportunity in predicting what’s next from SEBI’s (Securities and Exchange Board of India) kitty and makes a fortune out of it!

The market regulator, in August this year, surprised Indian mutual fund industry when it announced to scrap entry load (amount charged when an investor puts parks money in a mutual fund scheme). Though, a well-intentioned move (for the investors), it left lakhs of mutual fund distributors gasping for breath. Big distributors somehow managed to stay afloat by charging for the advisory fee from the clients, but; mid-level and small distributors are still struggling to survive. “Our business has certainly declined and it is frustrating for us to convince customers to pay separately for advisory services rendered,” says Shashikant Bahl of mutualfundwala.com, one of the leading distributors of Delhi to TSI.

However, that was not the only blow from the regulator. Since then, SEBI has made flurry of announcements like parity on exit loads on debt schemes, code of conduct for intermediaries, and the latest of the lot is facilitation of mutual fund units through stock exchange platform. Though, the last one is a move to help the asset management companies (AMCs) to expand their base, the initial reactions have actually indicated a dissonance on part of the players who are still trying to cope with the constantly changing business environment. Even some critics have now questioned seriousness of the market regulator. As per Dheerendra Kumar, CEO, Valueresearchonline.com“Changes are fine. But, players should be given a breathing period to adapt to new regulation. Otherwise whole industry will suffer.” Moreover, on 23 October, SEBI again left the whole community of investors, stock-brokers and stock-exchange operators befuddled when it allowed stock-exchanges for longer trading hours. The nod is given for 9 am - 5 pm trading instead of currently prevailing 9.55 am-3.50 pm. Market regulator believes that this move will help integrate Indian markets with global ones, particularly European markets.

However, majority of the trading community expressed their reservations against market regulators and they declined to toe the SEBI line. Association of National Stock Exchange Members of India (ANMI) conducted survey among 395 member-stock brokers and 62 per cent of them were apprehensive about the extended trading hours. However, the brokers are upset for the fact that the market regulator failed to take other market constituents in to confidence before making such an announcement. Ramesh Arora, Managing Director of KSBL (Kumar Share Brokers Limited) while criticising the move says, “We lack infrastructure to implement such a decision. Till now, by 5.30 pm stock exchange data comes to us; with extended trading hours the data will come by 8 pm, which means we will have to keep staffs for 10 AM to 10.30 PM. It will enhance cost of back-office operations in a major way. .”

Asit C. Mehta of Investment Intermediaries questions this act of the regulator? He asks, “Do the regulator thinks this will improve the depth of the market, provide better price discovery, improve price integrity, and reduce impact cost?” As per him, “Volume is more often than not driven by price movements, which depend on news and events. Moreover, with extended trading hours, the aggregation of orders will be less, which could increase the impact cost.” These mean longer trading hours may lead to higher total volume, but certainly, it does not necessarily result in better depth or liquidity.

Still, a section of brokers believes that investors will certainly benefit as they will be able to take cues from global markets in a better way. While opening early at 9 am will help the investors align a bit more with other major Asian markets such as Hongkong and Singapore, late closure will help stay in touch with the European markets.

Extension of these trading hours stems from the concern of intensifying competition between NSE Nifty and SGX Nifty for the volumes. At present volumes of futures contracts in SGX Nifty is much more than its Indian counterpart. Also, it is technologically superior and enjoys a better brand value in front of the global investors. Also NSE suffers from various constraints such as slow speed of India's regulators regarding derivatives trading.

Before implementing such order, SEBI must first ensure that Indian bourses have the requisite infrastructure in place. Mumbai based independent analyst Amit Barua expresses his concern to TSI, “If market closes at 5 pm and opens at 9 am I will have to stay in the office by late night and reach office earlier. This will be nothing less than punishment.” Thus instead of a mad rush for adopting global standards the market regulator should adopt a rather slow and calculated approach towards market reforms for the same to be more effective. After all, too much of anything is bad for health. The sooner SEBI realizes it, the better it will be for everyone associated with Indian capital market.