Opinions on research firms and brokerage houses for IPOs must be monitored.

- Small investors make investment decisions based on recommendations

When companies like Diwan Housing and IL&FS failed to meet their debt obligations and investors, especially retail investors, suffered huge financial losses, various government agencies in the country questioned the functioning of rating agencies and brought in norms to bring transparency in their operations. Were fixed. However, it is difficult to say how much the rating agencies have changed since then. . Whatever the role of merchant bankers, the PTM scandal has also raised questions about the country's capital market regulators. Especially with regard to the valuation of public payments.

When a company makes a public offering of equities, it is recommended by various research firms, stock brokers, independent analysts for their filling in their own way regarding the IPO of that company and investors decide to apply for IPO based on their recommendations. In the case of Paytm, one research firm was of the opinion that the replenishment was suitable for investment while another remained neutral and left the decision to the investors. With one exception, none of the research reports wrote negatively about the company or its payments.

It is the responsibility of research firms to make an accurate assessment of the viability of companies that make money through the sale of equities. It is on the basis of reports prepared by such firms that investors invest their capital in such payments. In other words, the job of research firms is to predict the future based on the current situation. Predicting may be a mistake, but not a failure.

Ordinary investors are the ones who have suffered the most from companies failing in the last few years. In such a scenario, it has become necessary to think about how to bring discipline and efficiency in inefficient research firms and independent analysts in India. Regulations on research firms must be reviewed. This will increase the transparency and quality of the research report.

Most investors, in particular, consider mutual fund research reports to be a simple formality. Companies in which their money is invested do not like any kind of downgrade as it affects their valuation and hurts the investment.

Although securities and exchange boards of India (SEBI) had earlier enacted special rules to bring transparency in the operation of credit rating agencies in view of the growing diversion in the financial sector and investors as a result of maneuvering by companies to get higher grades in the recommendations. The study of cases filed under the Insolvency and Bankruptcy Code (IBC) shows that lenders are aware of its vulnerabilities.

The policy of showing excellent grades and the mentality of not reporting adverse things has become a serious issue in corporate governance. At the time of the probe, it is doubtful that the companies are disclosing the full facts to the rating agencies or the research firms, which is why lenders and small investors are ultimately the victims.

With the country's stock markets soaring and the primary market booming, both SEBI and the Reserve Bank will now have to make sure that small investors are protected against companies that are taking advantage of the situation and taking money out of the market. There is no denying that there is a nexus between rating agencies, research firms and companies as companies benefit from higher grades. The same situation is being seen in the report of research firms in the same way that the confidence of investors in the rating agency has waned since the Diwan Housing and IL&FS chapters.

There are a number of instances in which a company with high grades has been given a lower rating later on. In such a scenario, investors, especially small investors, lose their money. In the first twenty days of November, shares of four of the seven companies listed on the stock exchange fell below the issue price. While these companies have raised money from the market with high premiums, it would not be wrong to say that the soon-to-be-listed discounts create a sense of deception among investors.

Although SEBI continues to take regulatory action in the interest of investors, the situation does not seem to have changed much and small investors continue to suffer losses in one way or another.