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February 24, 1999


Hints of capital market revival abound

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The Economic Survey of 1998-99 visualises a much-needed revival of the primary market in the wake of series of initiatives taken by the government in the recent past.

Expressing concern over the continuation of bearish phase for a larger period of the current financial year, the survey noted that introduction of derivatives trading based on stock indices and approval of buyback shares were expected to further brighten prospects in the secondary market.

Although the amount raised from the primary market through public and right issues during April-December 1998 in the current financial year was very low at Rs 39.29 billion in absolute terms, the fact that it represented an increase of 27 per cent over the corresponding period of the previous year is encouraging, the survey said.

The noteworthy feature of the current year was mobilisation of resources through private placement by infrastructure projects, specially in the power sector, which have accounted for a significant proportion of resource mobilisation.

The relaxations announced by the SEBI in respect of public issues by infrastructure companies like exemption from the requirement of making a minimum public offer of 25 per cent of security and permission to freely price offerings in the domestic market expected to encourage public issues of these companies.

Since the fast track power projects in the power sector are Counter-guaranteed by the Central government, public issues by them should be in position to get better response from investors, the survey emphasises.

The survey said measures already taken or being taken on the lines recommended by the informal group on primary market were expected to brighten the prospects of resource mobilisation through public and right issues in the primary market.

The revival of capital market was important for industrial growth; firms in both the public and private sectors need funds that could be raised through diverse instruments to finance new projects as well as expansion, modernisation of existing projects, the survey said.

It added that the revival of secondary market assumed considerable significance because conditions in the secondary market typically exert significant influence on the primary market.

Reviewing the performance of the capital market in the current year, the survey said movements in share prices reflected longer spells of bearish phase and shorter spells of bullish phase. The Sensex, which closed the previous financial year at 3893, crossed the 4,000 mark in April, registering a steady decline thereafter and closed at 2934 by end-August 1998. It crossed the 3,000 mark in September and remained above this mark, before declining to 2878 on October 5.

After remaining below the 3,000 mark for nearly three months, the Sensex again rose to 3055 on December 28 and closed at 3433 on January 11.

As regards the primary market, most of the recommendations made by the informal group on primary market have been accepted by the SEBI.

The survey noted that measures to boost investor confidence in the secondary market have been taken. The Companies Act (Amendment) Ordinance, the SEBI regulation enabling companies to buyback their shares, publication of unaudited results by listed companies on quarterly basis, amendment of the SEBI takeover regulations, rolling settlement in respect of demat securities, and stringent margin requirements to curb excess volatility in share prices are some of the measures, it said.

Notable developments in the government securities market include the practice of notifying issue size in respect of all treasury bills, exclusion of non-competitive bids from notified amounts, introduction of uniform price auction for 91-day treasury bills and amendments to the Reserve Bank of India guidelines on transactions by foreign institutional investors to facilitate investment in equity funds in government dated securities as well as treasury bills in both the primary and secondary markets within their debt ceiling of 30 per cent.

On the role of FIIs, the survey pointed out that their response to investment in the Indian market was affected by the reduction in their exposure to Asian markets. During the first nine months of the current financial year, the investment by FIIs was negative by $ 634.3 million -- from $ 9.28 billion to $ 8.65 billion, reflecting a decrease of 6.8 per cent.

Several steps were also taken by the government by allowing 100 per cent debt route in unlisted securities. The procedure for granting sub-account registration in respect of registered FIIs has also been simplified. In order to facilitate investment by overseas investors, including NRIs, the SEBI had created an overseas investment cell.

The policy measures undertaken to counter volatility in the foreign exchange market coupled with relatively easy liquidity conditions enabled the Central government to raise Rs 909.53 billion on net basis as on February 6, 1999, higher than the budgeted levels of Rs 793.76 billion and Rs 483.26 billion respectively.

The survey said that only 23 public issues came in the first nine months of the current financial year as against 56 during the same period the previous financial year. However, the amount raised through public issue was much higher at Rs 35.19 billion as against Rs 15.99 billion.


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