The dice are loaded against small investors

If you are a small investor wanting to put some money in a mutual fund, AMFI insists that you have a mutual funds identification number (MIN) to do so — for any investment over Rs 50,000. One appreciates the need to prevent tax-evaded money from being used as investment. But why can’t a PAN number be used for this purpose? Why this fixation for number allotment from different agencies?

If you are a large investor, with money stashed abroad, the KYC (know your customer) norms differ. You can, and often do, come in disguised as an FII (foreign institutional investor) using a participatory note. Thus the laudable effort to KYC has an Animal Farm approach - all animals are equal, but some animals are more equal than others — towards small and big investors. Why so?

One also wonders whether FII really stands for “funds invested by Indians”?

A Parliamentary committee has recommended that participatory notes (PNs) be phased out and the RBI Governor also holds the same view, but the Centre has cautioned against a sudden withdrawal, for fear of a crash in stockmarkets. Buoyant stockmarkets are yielding tremendous benefits, not least in higher tax collections and a consumption boom. Of course, there may be other reasons for the reluctance to phase out PNs.

There is a huge amount of global liquidity sloshing around and governments, fearing a rise in inflation, may raise interest rates more aggressively. This is a fear that causes nervous selling occasionally. Last week the Indian market started the year with a bang, with the Sensex crossing 14K and Nifty crossing 4K, before nervous selling caused a correction to end the week with the Sensex touching 13860, up 79, and the NIFTY at 3983, up 17. The main contributors to the 79 point Sensex gain were ICICI Bank (28), Infosys (23) and Reliance (21) while the losers were ITC (-43) and Reliance Communications (-27).

Evidence of the sloshing of liquidity is in the bids being made to acquire assets and the ability of companies to access funds for acquisition. Tata Steel, given its strong financial performance and low operating costs, has access to global funds that enables it to make a bid to acquire another steel company three times its size. It has set itself a target to produce 100 million tones of steel by 2015. Both the Tatas and CSN of Brazil are likely to revise upwards their bids to acquire Corus.

The Essar group has reportedly lined up a credit line of a whopping $20-25 billion to finance an acquisition of majority partner, Hutch, in Hutchison Essar. With others, such as Vodafone, Reliance Communications, and now, Verizon Communication, in the fray, this bidding war seems likely to hot up.

Power Grid Corporation is expected to make an IPO in May, and has, in the meantime, raised $2 billion in loans for its capacity expansion. DLF has filed its revised IPO for the mother of all IPOs. It is to offer 17.5 crore shares to raise at least Rs 10,500 crore, maybe more if the expected price is reached.

Just as capital flows easily, so does technology. Governments are often helpless to prevent the flow of technology. The Chinese government, for example, tries hard to prevent sites it finds unfavourable from being accessed by its citizens. It has set up an army of people to monitor visitors to these sites and also to shut access to them. However, proxy sites are being opened, in whose search box the site addresses of the proscribed sites are typed.

Similarly, in telephony, a net telephony provider called Net 4 is selling products that would allow calls to be made from India to the UK, US or Canada at just Rs 1 per minute over the internet. The government is trying (foolishly and unnecessarily, it seems) to prevent Indian BPO firms from using VoIP software like Skype, because it does not get its share of revenue. By doing so, it denies benefit of technology to consumers.

The market has room to move up, by a few hundred points on the Sensex, before it corrects sharply. Factors that need to be watched which could cause the correction are news on the participatory notes issue, the ever-growing Budget deficit that would make the finance minister desperate enough to propose new taxes, and tightening of interest rates by developed countries.

jmulraj@gmail.com