Fraudulent company management is the prime cause of worry for household investors, according to a recent survey by L C Gupta's Society for Capital Market Research and Development and Vivek Financial Focus.
The survey involved 531 personal interviews of household heads interviewed during September-October 2002, of which four were invalidated. The main cause of worry for household investors has been, as identified by over one-fourth of households, is fraudulent company managements.
Further, an analysis by income-class shows a high degree of consistency of results and such consistency is indicative of the high reliability of data generated by the survey, the report notes.
"In practical terms, this means that in India today, the investors' confidence in the stock market is low primarily because of corporate malfeasance and mismanagement. Our regulatory system has hardly touched even the fringe of this problem," the survey adds.
According to the survey, the next big worry is on account of too much volatility, followed by too much price manipulation. These are also among the main worries affecting a relatively high proportion of investors but they have somewhat abated after the market reforms since 2001.
However, the reduction on this account has been largely offset by aggravation of the problem of fraudulent managements. Taken together, the three most important worries, discussed above, affected nearly two-thirds of the household investors.
Of much lower order were investors worries on account of insider trading, an ineffective Securities and Exchange Board of India and brokers' unfair practices.
A comparison of this year's survey (September-October 2002) with that of last year (April-July 2001) indicates that the investors' worry on account of fraudulent company managements has become definitely more acute than before. The percentage of respondents worried most on account of this particular reason has gone up from 17.4 per cent last year to 27.5 per cent this year.
"That this particular cause has become more worrisome is also indicated by its shift from third rank last year to first rank this year among the sources of worry," the report notes. Income class-wise analysis also confirms that investors across almost all income classes are now more worried due to fraudulent company managements.
The income class-wise average percentage of respondents worried on this account varies between 20.7-33.0 per cent according to this year's survey; that is, above 20 per cent in every income-class. It varied between 11.1-20.0 per cent last year.
"The results of the survey presented above leave no doubt that the investors worry on account of fraudulent company managements has tended to become more acute compared to last year," the survey notes.
It would be reasonable to infer from this that the existing regulatory measures against corporate malfeasance and mismanagement are inadequate.
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