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R L PAI
MUMBAI, AUG 8: Shares which are currently under compulsory dematerialisation but still remain in the physical form are quoting at a discount of 8 per cent in the market. Small investors who have not opened a demat account with depository participants are losing heavily and unable to take advantage of the current stock boom.
For example, one investor who sold 100 shares of Pentafour Software which is under compulsory demat (where shares can be traded only through a depository in the electronic and paperless system) lost Rs 12,200. This is because the scrip in the demat mode was quoted at Rs 1352 per share on Friday. However, as the investor had not dematerialised his holdings, the share was sold at Rs 1230 per share, showing a discount of nearly 10 per cent.
Currently, the SEBI has made it mandatory that 104 scrips should be compulsorily traded in the demat system. However, the SEBI has allowed investors who hold up to 500 shares and who do not wish to open a demat account to sell their holdingsthrough the odd-lot counters on the stock exchanges. ``A small investor who is holding 100 shares of Reliance will have to either dematerialise this holding or sell it at a discount in the market,'' said a Bombay Stock Exchange broker who deals in such securities. ``Investors can avoid bad delivery and fake shares by opting for the demat system. But the sad thing is that many small investors have not understood the advantages of demat. Foreign investors have benefited by the demat system and they have increased their exposure in the Indian market recently,'' said a SEBI official. ``Share transactions will become smoother, faster and cleaner through the demat system,'' said a BSE official.
However, small investors who hold 50 shares and 100 shares of various companies are not very keen to open demat accounts. A shareholder of Ranbaxy who recently sold over 300 non-demat shares suffered a loss of Rs 20,000. ``I didn't know about the demat system. Although the broker explained the concept, I didn't want todematerialise the shares because of the tax problems,'' said P Shantaram from South Kanara district of Karnataka.Taking advantage of the dilemma of small investors, speculators have started cornering the non-demat shares sold by them. After sending these shares for dematerialisation, they make short sales in the scrip and pocket the badla (carry-forward rate) and later when the scrip is dematerialised, they sell the shares at a premium. The bull run on the stock markets and the discount on non-demat shares have now forced investors to rush for dematerialisation. The surge in demand for dematerialisation of shares has thrown the system out of gear with companies and registrars (who handle share transfer on behalf of companies) sitting on a large number of demat requests. While registrars have assured the SEBI that they will clear the demat backlog by August 15, the regulator has set up a committee headed by one of its executive directors to tackle the problem.
``The delay in dematerialising the shares hasstarted worrying the investors. SEBI had given enough notice while making demat trading in 104 companies compulsory. However, the rise in share prices in the last six months has prompted the investors to go for the demat system. Sensex had risen by 1,800 points to the 4601 level in the last one year. Investors realised the need to demat the shares only now but the system cannot take the load. But once the shares are dematerialised, share transaction will be smooth,'' said an official with a registrar.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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