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How to protect yourself from fraud while investing through online trading platforms in India

Indian market regulator sends out advisory cautioning against such actions

Question: I was in India recently and I found that certain platforms were offering virtual trading services to the public based on stock prices of listed companies. One of my friends was duped and lost some money. Is any action being taken to protect the public at large?

ANSWER: The market regulator, Securities and Exchange Board of India (Sebi), has cautioned investors about unauthorised entities luring the public through platforms and apps which would facilitate financial frauds resulting in losses for investors. In an advisory issued by the regulator, it has been pointed out that some web applications and platforms are offering virtual trading services and fantasy games to the public based on stock prices of listed companies. Such activities are fraudulent and are in violation of laws and regulations in India. Sebi has reiterated that the public should invest and undertake trading activities in the securities market only through or with registered intermediaries. Participation in unauthorised schemes, including sharing of confidential and personal trading data, would result in severe losses to investors because these schemes/platforms are not registered with Sebi. Some fraudsters were enticing victims through online trading courses, seminars and mentorship programmes, leveraging social media platforms. It has been clarified that some entities are posing as employees or affiliates of Sebi- registered foreign portfolio investors who are coaxing individuals into downloading applications which allow them to purchase shares and enjoy institutional account benefits. The FPI route is not available to resident investors and therefore any transaction would be illegal. Investors have therefore been urged to conduct due diligence and verify the registration status of an entity.

Question: My relatives and friends in India decided to buy silver instead of gold during the current festive season. I do not know what prompted them to do this. Is this a correct decision?

ANSWER: According to the Indian Bullion & Jewellers Association, the demand for silver surpassed that for gold during this festive season. This was primarily due to gold prices hovering above the level of Rs80,000 for 10 grams while silver prices were around Rs100,000 per kg. Therefore, the demand for silver has surged by 35 per cent this month and the sale of gold has been 15 per cent less than during the previous season. Further, the demand for silver has increased in view of higher industrial demand, mainly from electric vehicle manufacturers. Investors have therefore found real opportunity in investing in silver. Recently, gold prices on the New York Mercantile Exchange (Nymex) went past the $2,800 per ounce mark for the first time in history on the back of global uncertainties relating to geopolitical issues. Further, the demand from central banks worldwide for gold is also responsible for the increase in gold prices. The demand for this metal in India in 2024 is expected to be between 700-750 tonnes.

Question: There are reports that inventory of passenger cars has increased and automobile companies are finding it difficult to increase sales. Does this indicate a slowdown of the economy?

ANSWER: Far from there being a slowdown in sales of vehicles, there has been a 32 per cent increase in retail sales of cars, two-wheelers and commercial vehicles. According to data released by the Federation of Automobile Dealers Association, 2.83 million units were sold in October this year as against 2.14 million units sold in October 2023. The growth this year is largely driven by buoyancy in rural markets as a result of substantial purchasing power coming into the hands of agriculturists due to a better than average monsoon. Therefore, the growth story continues. This has also been highlighted recently by the Governor of the Reserve Bank of India, who stated that the agricultural and services sectors have recorded a robust growth. Exports of manufactured products have recorded a substantial increase. The services sector has regained strength in the last quarter on account of healthy domestic and global demand. As a result, service sector companies have recruited a substantial number of employees over the past two years. This sharp and accelerated rate of growth has given a boost to the Indian GDP which is projected to rise by 7.4 per cent over the preceding fiscal year.

The writer is a practising lawyer, specialising in corporate and tax laws of India.