March 28,2011 | Last update 13 minutes ago

Q: THE DTC (w.e.f 01/04/12)proposes to lay down that for computation of period of holding for Long Term Capital Gains on sale of capital asset, the period would commence "from the end of FY" in which one buys such an asset ( as contrasted to the currently prevailing, 'actual date of acquisition'). Now, in case of "currently held" debt based FMPs, say, which has been acquired in March 2011 (in FY 2010-11)for 15 months - to expire in June 2012 (FY 2012-13), the actual period of holding would be spread in three FYs, thus enabling the investor to avail of the benefit of "double indexation" of cost, while determining LTCG; whereby LTCG can be minimized for taxation or even LTCL can be booked. Now, for such a "specific existing case" (not the new one acquired after 01/04/2012), would the benefit of 'double indexation' be available to the investor in June 2012 (FY 2012-13), when the DTC may have come into vogue? Thanks.

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Moneylife » Investing » IPO » Khurshid releases book on study of constraints and solutions for IPOs
Khurshid releases book on study of constraints and solutions for IPOs
December 28, 2010 06:38 PM | Bookmark and Share
Moneylife Digital Team

In his new book, investor-activist Virendra Jain discusses issues like the disappearance of companies after fund-raising and monitoring of companies, based on his study of public issues by 243 firms between 2001 and 2009

Salman Khurshid, minister of corporate affairs, yesterday released a book titled ‘Wealth Creation and Destruction through Initial Public Offerings (IPOs) in India 2001 to 2009’, by investor-activist Virendra Jain. Praising the book, the minister said that the book has invaluable information which can be of assistance in policy formation.

The book provides detailed information on a range of issues and factors affecting IPOs along with a comprehensive study of 243 IPOs during the period 2001 to 2009 that contributed to the creation and destruction of wealth. The aim of the study was to find out constraints affecting IPOs and their possible solution through a policy framework.

Speaking on the occasion, Mr Khurshid underlined the need to create a situation where investors would have confidence in the capital market. Asked about the issue of the end use of funds raised through IPOs that is discussed in the book, Mr Khurshid said, “This essentially is an overlapping area with SEBI and the Ministry of Finance and we are looking into it”.

The study looks at various facets of IPOs such as issue price, role of merchant bankers, the process of grading (mandatory as per guidelines of the Securities and Exchange Board of India), laws, the policy governing IPOs, along with statistical data and information such as price history, and comparison with the Sensex of these IPOs. The book includes IPOs of the companies from both public and private sector. The book also specifically gives details of over and under-performing IPOs.

The book comes up with some interesting facts. It states that the Rs 1,07,373 crore raised by the 243 IPOs is nearly equivalent to the amount raised by a single IPO in China. It reveals that one out of every two IPOs of private companies resulted in wealth destruction and three out of 10 quoted at less than half their issue price.

Mr Jain provides reasons why the Indian market failed to retain, attract and sustain retail investors, despite transforming from a paper-based to a paperless online system. One reason is vanishing companies, where companies in the 1990s vanished after raising public funds, leaving investors cheated. Following this the government appointed a joint coordinating and monitoring committee in 1999. The study states that “the process of monitoring of companies by stock exchanges is weak and not adequate to act as a preventive measure”.  The other prominent factors for low participation of retail investors are compulsory delisting, defunct stock exchanges, scams and reduction of shares earmarked for them in the IPOs.

The over-pricing of IPOs by corporates, which was not sustainable in the long run, eroded investors’ confidence, Mr Jain writes in the book. He says PSUs were an exception as they fixed reasonable and fair prices. Interestingly, the use of technology is also cited as one of the factors for the decline in the number of investors. It states that the hassle of opening and operating a demat account and various charges levied on the account have affected the participation of investors in the market.

Mr Jain offers some solutions to the problem of dwindling investor interest. He says that an increase in the minimum securities offered in IPOs would lead to an increase in the liquidity, curb price manipulation and enhance efficiency of the price discovery mechanism. He suggests that the minimum offer to be made to the public be increased to 25 % from the current 10% of the post-issue.

He also suggests strengthening the IPO grading system whereby the process and the grading agencies should be made accountable and transparent. Fees paid to the grading agencies should be de-linked from the issuer company and must be paid by the stock exchange or SEBI. The report calls for strengthening the process of disposing of objections in the draft prospectus received by SEBI prior to opening of the issue and the final decision to be put on the SEBI website, which would enhance the confidence of investors in the system.

Other suggestions such as monitoring the end-use of funds should be done by the authority to ensure that funds are used for the purpose as stated in the prospectus. Monitoring share prices after listing and allotments, monitoring companies after listing, are some other key solutions mentioned in the report.  It emphasises on compensation and empowerment of investors in the event of loss due to fraud, unfair trade practices, insider trading and so on. Lastly, the report appeals for the simplification of the processes for opening and operating a demat account.

The book ends on the note that PSUs through IPOs can revolutionise the security market and accelerate economic growth by following the pricing principle they followed from 2003 to 2008 which led to immense wealth creation.

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R Balakrishnan 3 months ago
Surely, the world's thinnest book will be titled:
Rewarding IPO's from India in the 2000's.
» Reply » Link » Report abuse
Nagesh KiniFCA 3 months ago
In the 1990s many IPOs with great names went down under taking small investors - either they disappeared from the scene altogether or enjoyed the funds, milked the companies and abandoned them.
The Regulatory frame work should provide for stopping this by insisting on the promoters, in their personal capacity providing appropriate guarantees, proof of permanent residence as well as that of the legal advisors, auditors and company secretary to prevent them from scotting from some hole in the wall PO box Chor Bazaar address.
» Reply » Link » Report abuse
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