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In a move reminiscent of the old 'cha cha cha' dance steps, the SEBI has come out with its latest set of announcements. One cannot help feeling that it amounts to one step forward and two steps back. In financial management jargon, it amounts to net-net, minus one! 

The decision to permit short-selling by institutions in the spot and cash market is laudable. It will lend greater depth to the market and should enhance liquidity.
More importantly, it will arrest the one-way directional index flow, followed by abrupt and brief spells of extreme blood-letting that has plagued our market over the last couple of years.

However, one must wait and watch how the operational aspects of this initiative shape up. After all, the past history in this regard has not exactly  been awe-inspiring, has it?

The next on the announcements list revolved  around the land bank valuation rigmarole that has been on for quite some time now. While the SEBI's intentions cannot be faulted, the problem is that the step has come almost a year too late. The land bank joke commenced in the secondary market and overzealous merchant bankers lost no time in importing it to the primary market.

There it was flogged on gullible investors of all hues. Prevalent wisdom was subverted to suggest that a three digit price earnings ratio (P/E) was par for the course, as long as a substantial land holding was bandied in the red herring prospectus. That  the calculation of a company's land bank is as transparent as the calculation of saleable 'built-up area' in the city of Mumbai, was of course, overlooked.

In the corrective downswing of the BSE Sensex from the dizzying levels of 14,200 points, the sector hardest hit has been real estate. The SEBI would do well to note that the bourses are the ultimate levelers and the best antidote to absurd antics.

Remember the dot com craze and its market antidote ? Sadly, the majority of those investing in our markets do not seem to have learnt from past excesses.

Let us move on to the announcement of mandatory grading for companies seeking to float an IPO. The SEBI's bravery (or will history suggest, another less flattering adjective?) is commendable, given that nowhere else across the markets of the globe does anyone grade any form of equity, particularly IPOs.

Well, if not investors, at least the rating agencies, namely Crisil, CARE and ICRA, will laugh their way to the bank. And for what? Well, grading the IPO sans any evaluation of its pricing.

Given that pricing has been the biggest bane ever since the advent of the free pricing mechanism, this proposed grading system is amazing. At best, it amounts to a rating of the company, not its IPO.

To buttress the point, assume Infosys were to make a public issue today at Rs 25,000 per share versus its current market price of less than one-tenth. Under the proposed grading system, sans any evaluation of the price on offer, it will probably invoke the highest grade. Amen!
 
And so, the 'cha cha cha' charade continues, one step forward and  two backwards. Come to think of it, the one step forward too was mooted by the Honourable Finance Minister during the course of his Union Budget speech.

(Ashok Kumar heads LOTUS KNOWLWEALTH)

Email author: ceolotus@hotmail.com