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Retail Investment in Corporate Securities

-B.V.Raghunandan, SVS College, Bantwal

National Conference on Indian Retail Industry,Nehru Memorial College, Sullia.

September 16, 2011

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Corporate Securities: A Unique Investment

• Regular Income by way of Annual Dividend, Interim Dividend, Special Dividend, Surplus Dividend

• Capital Appreciation by way of Bonus Shares

• Capital Appreciation by way of Increase in market value

• Benefits from Corporate Action like share splitting, sponsored ADR, M&A

• Real Time knowledge of prices

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Significance of Retail Industry

• Managerial Stability due to wide-spread customers• Requisite to move towards a perfect market• Contrarian opinions needed for a well functioning market• Independent opinions will dilute the broker domination• Availability of a huge size of funds

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Retail Industry: A Fair Weather Concept• Fluctuations in prices due to speculative activities

• Speculation is needed in any organised market• Lack of stability in prices make the life of the

investors a hell• Untrained Investors with short-term perspective• Emotional decisions: frenzy of the movement• The market sensitivity to every major event

terrorises the investors• Buffoons in the form of experts giving misjudged

opinions

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Investor Education: The Most Difficult Exercise• Converting emotional decisions into rational decisions• Convincing them about long-term investment• Exposure to analysis of financial information• Wisdom not to be moved by the vested opinions• ignore the concept of loss of profit

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Traditional Retailers• Geographic

concentration: Gujarat, Rajastan, and West Bengal

• Community Biased: Parsis, Marwadis, Chettiars, GSBs and Brahmins

• Urban Concentration• Broker Dominated with

broker participating in the sale and purchase

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Change Agents• Dhirubhai Ambani of

Reliance Industries70s• IT Companies of the 80s• Media Companies of the 90s• Establishment of SEBI in

1988• Establishment of NSE in

1994• Entry of FIIs• Dematerialisation• Corporate Brokerage• Shorter Period of Allotment

in Book-Building• Shorter Settlement Cycle

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Primary market• CCI assured a stable market

• SEBI introduced free pricing

• Corporates found it highly profitable

• Follow on Issues brought in huge premium

• Investors incurred a huge loss

• Less Credibility

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Challenges

• Bringing back credibility to primary market• Free pricing to be done away with in IPOs• SEBI should develop a formula for fixing

the price or price band on the conservative model of CCI

• More stringent implementation of SEBI regulation on recommendations

• Risk Factors must be more clearly highlighted

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Opportunities

• Infrastructure projects• Commercial Agriculture• Bio-Technology• Pharma Research and Pharmaceuticals• Power Sector Development• Indigenisation of Defence Armaments• Aircraft Manufacturing

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Strategies

• Better Investor Education• Screening the activities of institutions in

IPOs• Avoiding the doomsday opinions• More slick prospectus accompanying the

application forms rather than a part of it• Better screening of the SEBI approval for

an IPO

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Stock Exchange: Challenges

• Curbing speculative transactions• Avoiding technical analysis• Value investment strategies• Prohibiting cross-holding in the companies• Screening the activities of the promoters• Restricting managerial remuneration in

Companies

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Opportunities

• More Inflow of FII money• Better public finance through

disinvestment• Gains for the Government through

recapitalisation of banks• More Venture Capital Participation• Larger body of retailers• More stable operations

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THANK YOU