Debatable Issue

As per the new ruling, any pre-issue advertisement by a company has to publish all statutory information in full and not select extracts. So, corporates wanting to tap the capital market in India cannot advertise their issue except in the form of standard-format "tombstone" ads giving the date of opening, closing, risk factors and highlights, as soon as they get the SEBI acknowledgement card, the go-ahead for the issue. Corporates, once they received the card, had traditionally bombarded potential  "Companies thus cannot effectively time their corporate campaign and may end up blowing money on such campaigns weeks before the issue opens and yet not have the desired results. Public memory is short," says A.P. Verma of Pressman Advertising.

Not fair, cry all affected players. The Financial Advertising Agencies Association of India has made a representation to SEBI, asking it to reconsider its decision. Says S.M. Singhvi of Sobhagya Advertising: "Financial markets thrive on information. Any curb on this is tantamount to violating the fundamental right of speech and expression which extends to freedom to communicate commercial information at the most opportune time. SEBI has exceeded its authority in putting this restriction."

 Adds a merchant banker: "SEBI has to stop being the overzealous parent who smothers the baby (read investor) with so many do's and dont's in the name of protection that the baby fails to grow into a mature and thinking adult." "The move is typical of the knee-jerk reaction that SEBI resorts to in its zeal to err on the side of caution. Whether it is bridge loans or forward trading, hasty decisions require reconsideration," says Vinay Mittal, a financial consultant.

The principal anti-SEBI argument runs thus: corporate campaigns have an educative value. "This ban can adversely affect the marketing effort of companies that do not have any direct interface with investors," says S. Sriniwasan, associate vice-president, Kotak Mahindra Finance. Hindustan Lever, Nestle and BPL may have strong brand names and images, but investors may be unfamiliar with companies that manufacture intermediates that go into the final retailed products, like soaps or colour TVs. Ergo, unless investors are educated about the end-use of the company's products, they will not be able to form an informed opinion on the growth prospects and future of the company.

"Corporate campaigns highlight the special strengths and potential of a company and its products which cannot be brought out in the mandatory issue ads," says Ashwajit Singh, president, Alliance Capital & Management Services. "The rigidly structured statutory ads are limited in scope. They tend to club all companies in broad categories." Company A that has been making a profit for 10 years since its inception and company B that incurred losses for eight years but has turned around in the last two years both publish statutory ads that read: "an existing profit-making, dividend-paying company".

The other point that companies are making is that the new regulation throws the process of planning a campaign into uncertainty. They have to stop corporate advertising the moment they get the SEBI card, but are not sure how long SEBI will take to issue it. "A campaign has to be booked in magazines and on TV six weeks prior to the date of publication or telecast. It's therefore difficult to withdraw corporate ads as soon as the acknowledgement is received. It will lead to avoidable litigation," says Singhvi.

But underneath all these logistical problems a fundamental question remains: is the average Indian mature enough to stay unswayed by advertising imagery when considering an investment proposal? SEBI obviously believes that a media blitz a couple of weeks before the issue can seduce small investors into putting their money on an unworthy company. But others disagree. And given the sullen investment mood prevailing currently, with corporates more insecure than ever about their ability to raise money from the public, the coming months will see this fundamental issue debated raucously from every which angle.