Vijay Mehta, the chairman of Association of National Exchanges Members of India (ANMI), on Saturday backed the decision of Securities and Exchange Board of India (SEBI) to ban 260 entities from market and said that the concept of tax exemption on long-term capital gains was being misused.
"Under the law of the land, the long-term capital gains on investment were exempted from tax, if you hold the investment for one year. Now, this was applicable to all the companies who are listed on the stock exchange. This concept was being misused," said Mehta.
"There were a number of fictitious or artificial kinds of companies with a small share capital. They were being floated. Their ten rupee share will go up to 500 rupees in a year's time, without any major profitability or growth in the company, or even identifiable companies. This was bringing a lot of erosion of confidence among the investors who will feel that the company has not done anything and the share price has gone up," he added.
Mehta also mentioned that SEBI was looking into the details of such companies since a long time.
"In fact, they had called a meeting where I was also invited as the chairman of Association of Stock Brokers. We had submitted them a list of similar kind of companies where this kind of appreciation has taken place and undue profit has gone in to the hands of the holder," he said.
"I think it will work as bringing a lot of confidence into the investors, into the stability of the markets. It will also send across a message that this kind of market manipulation will not be tolerated by SEBI," he added.
Meanwhile, the chairman of PHD Chamber of Commerce, Rajnish Goenka, credited the ruling Bharatiya Janata Party-led government at the centre for showing the will in this regard.
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"This has been going on for a long time and everybody knew it. But, there was no political will to do it. Now, the regime of our Prime Minister Narendra Modi government has the will to check to all these things; create confidence among investors and see that they are not cheated by these types of companies," said Goenka.
"So, this is the result of the government's strong will to correct all the things wrong for a long time. We congratulate SEBI and the government for showing their strong will on checking all these analogies in the country," he added.
After the ban, the regulator has accused them of misusing the stock exchanges to generate long-term capital gains of around Rs 485 crore, thus converting unaccounted cash into legitimate money.