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Unlocking Capital Market’s Riches

The secondary markets have been performing well in the last one year. Domestic and foreign investors as well as Indian Corporate have shown tremendous confidence in the India growth story and the future of the Indian markets, although there are still some concerns about global factors that could impact us and on rupee volatility. So this is possibly the best time to pause and think of what are the next big steps that will give the Indian markets the next big push. Extensive efforts have been taken by the market regulator, SEBI and exchanges to increase re tail penetration, use technology for financial inclusion and improve investor confidence by enforcing high standards of corporate governance in Indian companies.

We need to intensify some of these efforts to make the markets globally competitive. I would like to spell out some important steps which are necessary to increase depth and liquidity in the Indian markets:

  • NSE has been providing a variety of products ranging from equity to derivatives, currency, debt and volatilitylinked products to help investors meet their varying needs to hedge their market risks. NSE also has a large number of sectoral indices on which asset management companies have created suitable products like ETFs. The requirement was to create simple products in which retail investors Chitra Ramkrishna Chitra Ramkrishna is Managing Director and Chief Executive Officer, NSE, India’s largest bourse. She’s been with NSE since its inception in 1991 and is the first woman to head the NSE whose network stretches to more than 1,500 locations in the country and supports more than 2,30,000 terminals 18 The Finapolis l February 2015 can invest in low amounts with low risk—ETFs are ideal to meet this demand. NSE is making efforts to reach investors in tier-2 and 3 cities as well as smaller cities beyond the top-100 where investor appetite is still very limited.
  • Retail penetration should be increased to 15 crores. This need not happen through equity or derivatives if investors don’t have the requisite understanding. Small investors can invest through MFs and ETFs
  • Bring retiral money into the markets. This move could prove to be a game changer because not only will it add to depth in the Indian markets, it will help retirees get much higher returns which will help them beat inflation.
  • Technology must be used effectively to penetrate new places and ease end-to-end access to our market through different mediums, including mobile platforms and internet. Technology also helps in giving easy access to information which was earlier a cost or access barrier.
  • Make the Indian markets as competitive as Asian markets like Singapore, to ensure that the onshore markets are attractive.
  • While reforms in the secondary markets are critical, it’s equally important that there is revival in the primary market which has lagged despite the high returns that Nifty has given in the last one year (38% from Dec 13 to November 14).

More primary market issuances by the infrastructure sector could well lead the transformation of the Indian economy into a robust growth phase of primary market issuances

The SEBI chairman had recently announced that they are considering E-IPOs to bring down the cost and time involved in a public offer. This would be a path-breaking move and will benefit the entire market. SEBI recently narrowed the IPO window to maximum five days from the earlier bidding period of over 10 days, and has asked the companies and exchanges to ensure listing within five days thereafter. Besides, IPO investments have also been made simpler through the online route and now, allotments/refunds are almost immediate.

To kick in the virtuous cycle in the primary market, one of the important elements to be addressed would be equity financing for the infrastructure sector. If infrastructure is able to raise capital from the market and is less dependent on debt, companies will also get the confidence of investors and the market. More primary market issuances by the sector could well lead the transformation of the Indian economy into a robust growth phase of primary market issuances.

SEBI chairman has also emphasised on the need for companies to bring IPOs and offers for sale (an alternate mechanism to raise funds on the exchange) at the right valuation, and if companies keep these concerns of the regulator in mind and are conscious of making the right disclosures, we will see more confidence in the markets about these issues.

The government’s initiative to set aside a percentage of shares for retail investors in divestment of PSUs is also a very good move to revive retail interest in good quality stocks. Retail investors are also getting a discount on the share price of public sector companies, and recent stake sales and the CPSE ETF have seen very good response from retail as well as institutional investors. The government recently notified that public shareholding in PSUs will be brought to 25% in all the public sector enterprises by August 2017, which offers immense opportunity to retail investors, domestic institutions, foreign portfolio investors and HNIs to participate in the public offers. With more policy reforms, a better earnings cycle and higher growth in the Indian economy, we will see good quality paper coming into the markets. We will see the Indian markets taking the next big leap with concerted efforts from government and the regulators.

Written By: Chitra Ramkrishna

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