Investing in the Indian capital market is sometimes called the great paper chase. Share certificates come in tiny lots of 50 to 100 shares, clean deliveries are uncertain and the process of transfer can take up to a year at the end of which an investor may discover that his shares are fake, stolen or lost.
Given the cost and perils of dealing in paper, fund managers should ordinarily have cheered the Securities Exchange Board of India's decision in October to give a boost to paperless trading. In fact they are miffed because the regulator's deadline to institutional investors - that they must trade in eight large capitalization stocks only in dematerialized (electronic) form from January 15, 1998 - could actually force them to offload some of their prized holdings.
Retail investors have been exempted from the compulsory dematerialized trading deadline and this exclusion, fund managers fear, will suck out the liquidity and value of their holdings in these stocks. The retail segment - estimated at 30 million investors - is an important part of the market. Foreign investors source and distribute a large part of their stocks from and to these investors.