Public Information & Conflict of Interest

Indian Capital markets have taken a breather after a bull run & a stark correction in past 6 months. But where is the retail participation? Forget participation, Indian “retail investor” doesn’t have a clue what’s going on in the company he invests. There is a regulator which is setup to keep an eye on interests of “Retail Investor”. I have my own views about 2 things.

Public Information

We have big shot brokerage houses whose “analysts” churn numbers, built expansive models, attend conference calls, meet company management & finally give out buy or sell calls. These men from research houses have excess to various one to one meetings with key people from management. They have a chance to get a sneak peak to the plants & operations of the company.

The reports made from this information are published by brokerage houses to the clients who subscribe to them. These are basically a paid service. So now a retail investor, who is a part owner of the company, has to pay for a information, which is divulged to a select few, who make money out of it !!! Companies would argue that they would welcome any shareholder for any information. But that isn’t how it is.

Regulator should look into this. Any information given to any research house, brokerage house, etc. is public information, which should be made public by the company for its owners i.e. the shareholder.

Conflict of Interest

Most research houses are a package deal with a brokerage arm. Both this line of business is actually conflict of interest. The goal of a research house is to give fair & unbiased analysis on a company. The goal of a brokerage houses is to motivate its clients to undertake trades. These two functions under same business entity is essentially a conflict of interest. Research reports may lead to churning of portfolios leading to more brokerage income.

The above two topics are a general observation, but can be discussed in detail & intervened by appropriate body!