An alliance of profit
January 21, 2009
The office delivery-man wants to know what will happen to his 50 shares of Satyam. Friends call up asking if they should sell their larger holdings in the company. Family members are thinking of selling. Yes, of course, we know all about the 53,000 Satyam employees, about B. Ramalinga Raju's letter and what he and his brother eat in jail. But should you sell or hold the Satyam shares? That's something most pink papers are being coy about—simply because nobody really knows. We don't know either. But we can tell you how to hit back at Satyam's promoters. Seek help from investor protection groups.
Consumer protection in the financial sector involves different aspects as well as many agencies and regulatory frameworks. Coordination and early action are the keys. Individual investors are not equipped to tackle this, but there's strength in numbers. Over the years, investor education and protection groups have mushroomed across the country, approved and funded by the Ministry of Company Affairs, along with the help of the Investor Education and Protection Fund.
Do these groups help? You might remember the DLF drama before its much publicised IPO was shelved for a year from July 2006 to May 2007. The company tried to short-change its minority shareholders over a debenture issue. In response, the shareholders set up the Association of Minority Shareholders of DLF Universal, and filed a complaint with the Securities and Exchange Board of India (Sebi). In the ensuing battle, DLF was embarrassed, forced to apologise to its shareholders and reduce the size of the IPO as well as the offer price. Small investors got a deal that was better than the one that was originally being passed on to them. That's the power of collective action.
Such groups have also ensured that companies do not obfuscate important issues. Very often, shareholders do not get all the information that they need to make decisions on their holdings. Investor action groups have managed to ensure that small investors no longer have to fight for such basic issues as an annual report or a notice detailing the AGMs and EGMs, or even trace vanishing companies. Says Kirit Somaiya, president, Investors' Grievances Forum: "The forum has acted on many instances where the companies have been found to be acting against the interests of the shareholder." It is common for companies to post important notices to wrong addresses or send it too late for the investor to act for his gains.
The stock market is still the realm of brokers and analysts who can swing the stock price movement. Small investors do not realise that these brokers and players with vested interests are responsible for unexplained movements. For instance, penny stocks might suddenly gain and small investors might be tempted to buy. They end up losing a lot more than they might have bargained for.
"The case of vanishing companies is another instance where small investors have been left in the lurch as the firms have not left any details and have delisted," says Jain. While little can be done about investments in delisted companies, in case of nondisclosure, small investors can seek legal recourse and salvage some of their investment. It's rare for a company that delists to relist immediately. For instance, DLF was listed on the Delhi Stock Exchange in 1976, but later delisted citing the increase in listing fee as the reason. The promoters paid a fine of Rs 5 lakh for non-compliance with Sebi's guidelines and delisted from DSE in September 2003.
However, with the investor action groups keeping up the pressure, there's greater transparency and most actions against the small investors are quickly reflected in the stock price. But, as Virendra Jain, director, Midas Touch Investors Association, says, "Most small investors realise their powers and rights only after they get into trouble." Also, the investors are used to the government stepping in to clean up the mess. That's what happened in the case of US-64, and that's what most people think will happen now with Satyam.
Between 1 December 2008 and 7 Jan 2009, when Raju confessed to cooking up the books, Satyam's price took a beating to settle at Rs 40, a fall of 17% of its value in a little over a month. Since then the scrip has been extremely volatile and is being actively traded. Those who are buying the stock realise that its true worth is not Rs 20 and that it is likely to go up. It may not reach dizzying heights but will probably settle at Rs 70 or a little higher. The upside at the moment is 4-5 times the acquisition price over the next few months. The downside: not all that much. After all, how much further can it go down? While institutions are transacting in bulk, you can place a smaller wager so that you may not lose.
There's a piece of advice that's often doled out to those who rely on outside help: "Pray to god, sailor, but row for the shore". Investor groups are doing just that—hoping for government assistance, but at the same time are trying to fight the corporate Goliaths on their own.