Let us start on a good note, M&A landscape is set to change as SEBI comes with new takeover code today. The high profile open offer trigger is increased from 15% to 25% and the non-compete fees is scrapped.
In Mutual Fund segment, introduction of transaction fee (INR 100-150 for investment of INR 10k) will be revival of sorts for the distributors. Also the stringent KYC will be unified and simplified by linking it to the aadhar cards.
What are the implications?
- Easy availability of the growth capital as the increased open offer trigger will attract more investments from private equity placements, strategic investors
- The scrapping of non-compete fee will improve valuations and will treat all the shareholders fairly and hence price per share for the target firm is set to improve
- Simplification of the investment processes under SEBI’s jurisdiction by the revised KYC framework
There is another good policy in the making ‘The Companies Bill 2011’ which is under the review of the cabinet. The new bill proposes following things:
- Companies with net worth more than of INR 500Cr or turnover more than INR 1000Cr turnover will have to prepare CSR policy and spend 2% of avg. net profit into this. Although it is not mandatory but the company not following will have to publicly state reasons
- Investors to get rights to intervene in management’s decision by proposed class action. The bill might also provide for punishment for frivolous class action suits
- Provision for mandatory rotation of auditors and critical evaluation of independent directors to promote good corporate governance practices
Coming to Bad policies, which is actually ineffective one is the Lokpal Bill recently passed by the parliament. Contrary to recommendations by civil society representatives headed by activist Anna Hazare, the UPA has kept the Prime Minister, the judiciary and the conduct of lawmakers inside Parliament out of the purview of the Lokpal. The immunity for the Prime Minister only extends to the period during which he remains in office
As per the government’s draft, the majority is driven by government (5/9 members from govt.). This will give complete authority to government. The power to remove the Lokpal also vests with them and not a Supreme Court judge or a five-member committee as suggested by the civil society. Why do we actually need Lokpal if we are going to follow these rules! This is a mockery of the revolution which started few months back.
So it has been mixed feeling week. Steps are being taken to improve the capital market in India but if India has to grow completely, society cannot be neglected for too long. I remember JRD Tata’s words: I don’t want India to be just a superpower. It should be a happy country!