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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:

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