MARKET PERSPECTIVE

By J Mulraj

Apr 26-May 2, 2025

Should financial fraudsters be treated as harshly as terrorists?

Image created by Openart.ai

The appalling state of investor protection in India is exemplified by this report in April 25, Times of India. Out of the 2002 online financial frauds committed in Mumbai between 2021- April 2025, only 2 convictions have been made!  As the image shows, the judiciary, the investigators, the regulators and the politicians have turned their backs on the individual investor! That’s not encouraging for a nation aspiring to be a developed economy, the top 3 by GDP, inside of a decade.

The investigators are able, but uninterested, in pursuing crime, whether online or otherwise. Perpetrators of crime are more able than victims of it, to ‘afford’ delay. With a backlog of 56 million cases, and, given the ease with which adjournments are continually granted (despite a judicial order not to allow more than 2 per case), the hope that the system will rescue the victim, is a triumph of hope over experience!

Regulators, too, are, in some cases, found wanting. In the case of NSEL, a commodity exchange approved by the Government, no regulator was appointed to oversee it’s functioning! How can this be in an exchange where public investors, looking at the Government approval, invest their funds? Is this investor protection?

Finally, victims of fraud turn, in desperation, to bureaucrats and, if they can manage to reach them, politicians. They get platitudes, little else. In cases where Government owned banks are defrauded (Vijay Mallya, Mehul Choksi, Nirav Modi) the Government devotes a lot of resources to bring them to justice. But not in cases where private citizens are defrauded. Is this investor protection?

There are thousands of suffering victims of Ponzi schemes. Agencies like the ED (Enforcement Directorate) or the  EOW (Economic Offenses Wing) also seize assets of the fraudsters, sadly the seized assets are never sold to recompense victims. In the NSEL fraud, the ED has so far seized ₹ 3433 crores, or 61% of the ₹ 5600 crores involved in the scam, but has not used it to recompense investors. Is this investor protection?

White collar crime continues in corporate India too. In 2010, the founder Chairman of Satyam Computers, Ramalingam Raju,  sent its board a confession that he had been falsifying accounts to inflate profits to boost it’s share price. He and other insiders sold at inflated prices and invested in property in Hyderabad. When the property market crashed, Raju was unable to meet obligations. The US SEC fined PwC $ 6 m. for not following accounting standards.

Recently the share price of Gensol Engineering, which provided advisory services for solar power, collapsed 80% from it’s all time high, in about ten months. Two rating agencies, CARE and ICRA, downgraded Gensol’s debt rating to D, for loan repayment defaults, in March 2025, triggering the slide in it’s share price.

Rating agencies had asked Gensol to provide account statements from their lenders. Gensol did, except for two Government lending agencies, IREDA and PFC. In the case of IREDA and PFC  it provided fake ‘conduct letters’ stating that there were no outstanding dues. There were. Auditors are duty bound to obtain independent confirmation.

Such frauds happen only because the risk-reward ratio for fraudsters is highly favorable. If the fraud succeeds, they get undeservedly filthy rich. But even if it doesn’t, they can, with stolen riches, influence investigators and use endemic judicial delays to postpone their accountability.

The only way out is to reverse this ratio by making the risk of committing fraud so high that it’s not worth the reward. Treat fraudsters like financial terrorists (which, by ruining the lives of their victims, they truly are) and strengthen the investigatory, regulatory and judicial systems to do their jobs with speed and toughness.

Foreign investors are hesitant to invest in other jurisdictions if unsure of swift dispute resolutions.

The major news of the week was the dastardly killing of innocent civilians by terrorists in Kashmir. Expect retaliatory military action. The world must condemn, through actions and sanctions, State funded terrorism. How can it be allowed to continue?

GST collections in April are at a high of ₹ 2.4 trillion! Perhaps the FM could consider a reduction in rates and a merging of slabs. It will probably raise total collection!

In global news, the US has done a deal with Ukraine for jointly extracting rare earth minerals. That may, perhaps, be enough to provide the ‘security guarantee’ sought by Ukraine obviating/postponing the need to join NATO for the purpose. But there is a problem. The land  from which the minerals are to be extracted is under Russian control!

Trump’s tariff policy, hiking tariffs to ludicrous (non serious) levels to compel other countries to kow tow, has boomeranged. American importers advanced imports, in an effort to beat the hikes, thus widening US March trade deficit to $162 b. (From $90 b. in March 24).

Last week the BSE Sensex ended at 80501, up 1289   over the week, on hopes that the trade war might be eased.

Indian retail investors continue to invest in Indian equities, largely using SIP (systematic investment plans) of mutual funds, committing a fixed amount, of their determination, every month. This commitment has been steadily met. As a consequence to this domestic inflow that DIIs (Domestic Institutional Investors) have overtaken, after 15 years, the FIIs (Foreign Institutional Investors) in terms of holding of corporate equity. DIIs hold 17.6% compared to the 17.2% held by FIIs who are far richer.

Until such time as retail investors remain steadfast in their SIP commitments, the Indian bull will continue to charge.

Comments may be sent to jmulraj@asiaconverge.com