How credible are research analyses put forth by brokerage houses and independent analysts? Are they trying to unfairly manipulate sentiment in favour of a particular stock? Is it possible you may be taken for a ride by the research analyst?
In order to root out any foul play arising out of conflict of interest and make the market a safer place for investors, the Securities and Exchange Board of India (Sebi) is planning to rein in research analysts. It has floated a 'consultation paper on proposed regulation of research analysts'.
The proposed regulations require research analysts to seek prior approval from Sebi to operate in India. They are also required to make disclosures such as valuation methods, compensation received from other activities and present or past relationship with a company on which it has published research reports. Further, they have to maintain records of research reports, recommendations provided, whether written or oral, and rationale for arriving at the conclusions.
Besides, they cannot take a call which is contrary to the recommendations within 30 days before and five days after the publication of a research report. They cannot publish about or recommend securities of a company whose securities they have dealt in or traded within the previous 30 days.
Independent research analysts, intermediaries which employ research analysts and issues research reports, as also research analysts giving recommendations in the TV channels, newspapers and websites will come under the proposed regulations.
Investment advisers, asset management companies, proxy advisory service providers and fund managers of alternative investment funds engaged in research services to their unit holders will not come under these regulations. Media and online bloggers are also out of the ambit of these regulations.
Commenting on the additional costs that research analysts will have to spend to remain Sebi-compliant, Rahul Goel, CEO of Equity Master, says, "For us there is no issue of compliance costs at all. As long as a regulation is constructive and helps protect the investor, and at the same time promotes the interest of the sector, we are all for it."