Disinvestment agenda must be continuous: Deena Mehta

In an interview with Business Standard, Deena A Mehta, Managing Director, Asit C Mehta Investment Intermediates, talks about taking her broking house national and other issues close to her heart.

She says the savings rate in the country is one of the highest in the world and investment in the capital markets is the most logical alternative that should be available to every citizen.

"The market today is shallow and depth can be added only if we have more investors with a long-term investment motive and not a punter mentality," the firebrand broker, who has been on the Bombay Stock Exchange board, says, adding that volatility can be reduced if stocks and money freely move from one market to another.

Why the focus on retail segment?

The retail segment has been ignored until recent times. The erstwhile physical paper and manual trading put limitations on the geographical reach that a broker could have.

The advent of automated trading and depository services have eliminated the logistics involved in servicing retail investors across the length and breadth of the country. The only weak link is the e-banking services which are likely to reach all parts of the country in two-three years. We have been always big on retail since inception in 1984.

In mid-90s, we had over 300 sub-brokers, one of the largest network in India. The paper problems made the risk unmanageable and we had to shrink the network. Now we are back with a large presence all over the country.

Do you think the proposed margin trading system will draw more retail investors?

Margin trading and securities lending and borrowing are the pillars of a healthy capital market. Since the abolition of ALBM and BLESS in mid-2001, the market has been without any deferral products.

Stock futures have, to some extent, filled the gap, but they are available only in select stocks and the minimum exposure limits are very high. The absence of margin trading and stock lending and borrowing have put derivatives in a different orbit and the latter do not have any correlation with underlying cash market.

The correlation can come only with physical settlement of derivatives contracts. For physical settlements it is necessary that we have margin trading and stock lending.

Prices in two markets will stabilise only when an investor, who finds that cash market too high, wants to short sell in cash and buy in futures. However, in the absence of stock in his own account or facility to borrow, he cannot do the same.

Has the recent round of divestments deepened the markets?

It will not be prudent for the government to stop with these six issues. The markets have to be made a true barometer of the economy.

This can only be achieved by ensuring that every major sector that is vital to the nation is represented on the exchanges. Listing of Indian Airlines, Air India, and Indian Railways, National Highway Authority, Delhi Metro Corporation should represent the transport sector. Listing of Life Insurance Corporation of India, General Insurance Corporation and its subsidiaries should represent the insurance sector.

Further disinvestment is required in the oil and gas sector, in companies such as BPCL and HPCL. The minerals sector can be represented by listing of Coal India. The list can go on and on. The markets have to get more depth. This can be achieved by making a large number of stocks available to retail investors.

Till now the shareholding of companies was concentrated in the hands of promoters, then came financial institutions, which acquired capital along with term lending for projects. The FIIs have entered the scene taking away all the liquidity in stocks of well-managed companies. As the list of well managed companies increases on the bourses, the concentration of trading in a few scrips will also reduce, which in turn will reduce volatility.

Retail participation in IPOs, especially the book-building route, has been made difficult owing to certain operational issues. The trading terminals of BSE and NSE are spread across 400 towns, however, the bidding facility is available at about 40-plus locations only. We need to use trading terminals of exchanges to ensure maximum reach.

The link of broker and investor should be fully exploited. If this is done then we will have achieved our objective set out by the prime minister to take stock market prosperity not to just a select few but to the masses as a whole.

Where do sub-brokers fit in when brokers start dealing with investors directly?

The Securities and Exchange Board of India (Sebi) has mandated since September 2003 that brokers issue contracts notes to investors directly. There has been no change in legal position since then on the issue.

The directive redefines the role of a sub-broker. The sub-broker earlier had the operational responsibility of servicing the investor by issuing confirmation memos collecting payments, shares.

Today his role is more of customer relations associate who will assist the broker in guiding the investor and making investment in capital markets a safer alternative.

The move should give sub-brokers an opportunity to upgrade their skill sets and provide better investment guidance to the investor and assist the broker in business expansion in remote areas. The operational hassles were time consuming and gave little time for self-development and enhancing self-knowledge.