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'People's confidence in UTI has been totally eroded'

Kirit Somaiya is visibly perturbed. But he says he has reasons for his hassled state. Somaiya, Lok Sabha member and president of the Investor's Grievances Forum, has made numerous attempts to draw the government's attention towards the escalating prices of certain stocks.

In February 2000, he brought to the notice of the Union finance ministry and the Reserve Bank governor that during any teji or mandi in the market, additional money has been finding its way into the capital markets. He has urged authorities to be pro-active and find out where this money comes from.

"They must always keep an eye on whether the money flowing into the stock markets is coming from co-operative banks, foreign institutional investors (FIIs), NRIs or any other source…," he says.

"Some time ago, I applied for a particular IPO. The Punjab National Bank directly financed Rs 900,000 for my application of Rs 100,000. I showed this document to the finance minister and the RBI governor," says Somaiya.

Only after this, a committee was appointed to probe into the matter. "In late 1999 and during the first half of 2000, infotech issues were over-subscribed by 10, 20, and -- at times -- even 300 times! According to me, this valuation was only fabrication," he asserts.

This time around, however, Somaiya has embarked on a slightly different mission: to find out if the underworld has made inroads into the Indian capital markets via the FII route taking advantage of certain weaknesses in the system. "I'm still doing my homework," he tells Kanchana Suggu in a frank tete-a-tete.

"FIIs are playing a major role this time around. Particularly, Mauritius-based FIIs. I suspect there are several FIIs who are doing business only in India through this Mauritius route. Their bonafides should be checked," he says.

Ask him what he thinks of the much talked-about Global Trust Bank-UTI Bank-Ketan Parekh issue and for a while Somaiya opts to remain quiet. However, silence is something he can't handle for long.

On Sunday morning, Somaiya wrote a detailed letter to the Union Finance Minister Yashwant Sinha requesting him to stop the GTB-UTI Bank merger.

This is what Somaiya believes happened:

• Ketan Parekh -- through his group companies Chitrakoot Computers Pvt Limited, Classic Pvt Limited, Goldfish and Nakshatra Software Pvt Limited -- received more than Rs 2 billion by way of loans and advances, NCDs, inter-corporate deposits, debentures, private placements and preference shares.
• Ketan Parekh and group then used this money to purchase shares of GTB from the market. It is also suspected that Parekh holds about 10 per cent of GTB stock, not 5 per cent as reports would have us believe.
• After GTB prices went up, Ketan Parekh and group offloaded shares, booked profits and returned the finances to GTB.

The letter, addressed to Finance Minister Yashwant Sinha, Reserve Bank Governor Bimal Jalan and Sebi's executive director L K Singhvi, demands an enquiry into insider trading, price rigging, market manipulation and benami transactions.

Somaiya then goes on to furnish some more statistics:

• As on June 30, 1998, UTI's holding in infotech scrips was a mere 0.36 per cent.
• As on June 30, 1999, the figure went up to 3.4 per cent.
• And on June 30, 2000, UTI's holding shot up to 33 per cent.

"UTI may say anything, but according to me, it was a promoter-operator-financier nexus. If any company or individual goes on investing in a scrip, it is bound to go up," says Somaiya, adding that an act of this nature is 'manipulative and inflationary'.

He then drops a bombshell:

"You know, I have just found out that during the same period UTI subscribed to non-convertible debentures of Himachal Futuristic worth Rs 500 million. It gave another Rs 500 million to the Zee group via Siticable. This is authentic information and it has come to me from inside sources."

Though Somaiya has written a letter to the chairman of the UTI asking for an explanation, he has yet to receive a reply.

No sooner does he talk about this than he busies himself with firing yet another reminder to Unit Trust of India chairman: this time he is asking for complete details pertaining to inter-corporate deposits, NCDs and debentures, loans and advances, preferential shares and private placements with respect to Himachal, Zee and DSQ Software.

"I feel this is just like the 1992 securities scam. Then, it was Harshad Mehta with the milibhagat (complicity) of some bankers. This time it is a little different, but the modus operandi is the same. In 1992, with the help of bank money, he inflated various scrips' rates. This crisis was caused by a few operators with the help of promoters, financiers and some co-operative banks," he says.

A comparison of the peak prices of some of the stocks with the current prices has Somaiya thoroughly worked up. "Can you imagine what the common investor must have lost?"

Take a look at some of these stock prices, he says:

Company	Peak price in 2000 (in Rs)	Price as on March 30, 2001 (in Rs)
Aftek Infosys	5000	152
Himachal	2553	159
Zee	2330	122
Silverline	1395	73
Pentamedia	2344	89
SSI	7200	672
DSQ	2820	98

 
"Only when a scam breaks out, some correction takes place. I think the main defect lies in the fact that in the 1990s we abruptly opened the capital markets to everyone. It should've been opened to only Indians first and then globally," he says.

However, Somaiya believes that now the Indian investor will think twice before he invests in the stock markets. There was a time when the regulators, the ministry of finance, the RBI and even the media urged people to invest in the capital markets. But this faith, he fears, has been shaken to a great extent.

He comes back to UTI soon. "The confidence of the people in UTI is totally eroded. Till 1998, the total resource mobilisation by mutual funds was around Rs 100 billion and UTI's contribution was 89 per cent. The figures today are shocking. While the net collection is Rs 117.87 billion in the first 11 months of this fiscal, UTI's contributions is just Rs 1.06 billion. Or just 0.89 per cent," he says.

So what does he think should be done.

Somaiya demands a makeover in the UTI's corporate structure. He believes that for the biggest scheme in India, critical decisions cannot and should not be taken by only a few individuals.

"There is no professionalism or transparency whatsoever in UTI. They have been avoiding the implementation of the government's recommendation of separating the asset management company. I think restructuring of UTI is badly needed," he asserts.

Though he believes that certain individuals might have failed, Somaiya says he still has faith in the regulatory bodies of the country. In fact, he believes that the future of capital markets in India is 'good'.

"There should be better regulation, vigilance and every person connected with the capital market should be honest. There is also a need for more investor awareness and education," he reiterates.

Even the police and the CBI, he feels, should keep updating themselves on the happenings in the stock market.

Easier said than done, one may say. But, for the time being, Somaiya is busy shooting off letters to the finance ministry and to various companies asking for explanations.

On behalf of the small investors, he has also filed a complaint with the Economic Offences Wing of the CBI against two companies: Century Consultants Limited and Cyberspace Infosys Ltd.

The verdict in that case has yet to be arrived at...

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