Sebi is planning to launch an early warning system for investors. As the risk around stocks grows, this system will warn about the overvalued stocks or a loss-making company with a bad business model. It will be similar to riskometer of the mutual funds and guide investors whether to invest in the particular stocks or not. SEBI is the chief market regulator in India having the authority to look after any false schemes and offers by the different equity companies.
According to the reports that have emerged in the newspapers a team from the Sebi visited the Singapore and Hongkong, where they have the similar system which generates an automatic report for a particular stocks considering all the points mentioned about the business of the company. Whether it is right to stock to trade requires thorough research and preparation before anyone plans to invest in the particular stocks.
According to media reports, the Sebi could ask for additional information from the companies to be included in this system such as quarterly decisions on the human resources, cost-effective measures, top management payments, details of loan is taken and reducing debt etc.
The risk involved in investing in the particular stocks can be reduced if the approach of the company changes towards producing a report of not only their financial data but a report on the evaluation of the current or past decisions taken. The approach towards producing evaluative research-based reports will help the investors to have a proper and clear picture of the particular stock.
Sebi and The Market
It must not come as a surprise in the countries like India, where the hundreds of stocks are manipulated to garner funds by hiding the real data. The genuine report by the company would be the first step towards creating such a system.
Sebi is also planning to launch this system as early as possible by consulting with all the stakeholders involved in the process. The system designed could consist of a numerical data or colour coded scale, which will easily allow investors to base their decisions whether the particular stock is worth investing or not.
The equity market is prone to be a high-risk market, and without proper research and enough parameters about a particular stock, it could lead to the complex scenario for the investors. Singapore has the early warning alert which helps in guiding the equity investors about the risk involved in the proposed investment.
This kind of system will surely bring much help to the new investors of the equity market, who prefers to invest responsibly in the market and also allowing companies to keep their house in order. To create a system which is helpful to the investors is the Primary aim of the Sebi. The companies are willing to take that bet or not remains to be seen.
Helping investors make best choices in the market should be the aim of companies, and giving him proper and authentic information will only help companies in the long run. The process is complex but worth achieving.