The Hindu Business Line : Bull market — Sense from SEBI, for now

FOR the first time, the top management of the Securities and Exchange Board of India (SEBI) has taken a sensible view on the bullish trends in stock prices.

The views expressed by the SEBI Chairman, Mr G. N. Bajpai, mark a break from the past, when the then CEOs were only too keen to egg the markets on. In quite a few instances, this* played no mean a role in SEBI turning a blind eye to the excesses in the market. The objective: Do nothing to disturb the feel-good factor created by rising stock prices.

A new line: The sum and substance of the views expressed by the SEBI Chairman on the recent rise in stock prices are:

Investors should not be lured by extraneous factors and should make their own decision as to whether they should invest in equities or other options.

Investors should not get carried away by the hype created by select individuals and should gather as much information as possible.

Any decision should take into account the trade-off between risk and returns.

And last, but not the least, SEBI's role is of a market regulator. It should not comment on market trends; it should closely monitor the market.

If Mr Bajpai's stance becomes an integral part of the regulator's position on this aspect, it would enhance SEBI's credibility.

Talking the markets: To get an idea of the change that these views represent, a look at the views of SEBI's top management in the past five years:

In 1999, the then SEBI Chairman, buoyed by the improvement in FII flows in the July-September* period, suggested that a further $1 billion would flow into the market by the end of the year.

By any yardstick, this is sizeable, that too when it is compressed in a short time-frame of about three months. Usually, such flows have led to sharp upside in stocks. For the SEBI Chairman to take such a view was effectively a case of talking the markets up.

There have been other occasions, during the bullish phase in 1998 (involving Videocon, BPL and Sterlite) as well in 1999 and early 2000, when the SEBI top management expressed views on market trends and likely levels. Usually, a set of factors was indicated to support the articulated view. These were brief comments though.

One of the more notable instances was a view expressed in 1999-2000 by a member of the SEBI top management team that the Indian markets needed market operators of the Harshad Mehta kind. Implicitly, this condoned the methods used and almost yearned for a repeat. As this assumed dimensions of a controversy, SEBI did put out a denial. But, by then, the damage was done.

Not once during the pronounced bullish phase of 1999-2002 did SEBI warn investors about the dangers in the market which had run up by about 100 per cent. Nor was there any warning about trends in IT stocks, quite a few of which had risen manifold in a short time-frame.

Sharp spurts in turnover on the NSE and BSE were ignored. In doing so, SEBI took refuge in the views expressed by the exchanges that nothing was amiss — a stance that was far removed from reality.

Stay clear of prices: SEBI's role is essentially to regulate the markets and protect the interests of investors. The focus should be to ensure that the checks and balances in the system work well.

This should be backed up by timely surveillance, investigation and punitive action — an area where SEBI's approach has been slack. Expressing views on stock price trends is an area that SEBI ought not to tread.

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Bull market — Sense from SEBI, for now