The decision of the Securities and Exchange Board of India to shorten share transaction settlement period from July 2004 will create more hardship for small investors living in far-flung places, a capital market expert said on Tuesday.

The size of small investors was shrinking also due to the high demat charges, Chairman of Society for Capital Market Research & Development LC Gupta said at a seminar organised by Maharaja Agrasen Institute of Management Studies.

Criticising Sebi for proposing T+1 (transaction date plus one) rolling settlement system from July, he said: "The Sebi has almost forgotten the importance of enlarging retail investors' population. The new system will create more hardship for widely-dispersed small investors."

"The Sebi is enamoured of technology only, though our banking system is not geared for it," Gupta, a former member of Sebi's derivatives committee, said.

Referring to a survey conducted by SCMRD, he said: "For a majority of the retail investors, the demat system is a white elephant."

The foreign institutional investors have largely driven the recent market rally, while retail investors have mainly been sellers, Gupta said.

Many small investors could not sell shares for several years due to prolonged market depression but the present rally, driven by the divestment of PSU shares provided an opportunity, Gupta said.

Citing NSDL figures, he said retail investors' accounts shrank from 4.48 million in March 2002 to 3.8 million in March 2003 and then rose to 4.59 million in December 2003.

"Bulk of such increase in retail shareholder accounts does not represent any addition to investor base because many existing holders of paper certificates have opened a depository account in order to sell their shares," he said.

A fraction of increase in demat accounts could possibly represent first-time investors for subscribing to some attractive initial public offerings, he added.