BHAGVAN MAHAVIR COLLAGE OF BUSINESS

ADMINISTRATION

STUDY OF

RECENT TRENDS IN INDIAN CAPITAL MARKET

SUBMITED BY:

ROLL NO: 11 TO 20

SUBMITED TO:

MISS CHETA MEM

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 Observation

Before we look at the recent trends in the Indian capital market, a retrospective glance at
the market will be relevant. Fortunately, India has been spared of any major corporate
debacles of the kind and magnitude the world witnessed in the recent years. But, certain
developments like widespread industrial sickness - not attributable entirely to external
Factors -capacity overhang constricting growth, unsustainably high IPO pricing by
companies who chose not to mix business with scruples, vanishing acts of vampire
companies, robbed the market of its buoyancy. Two scams of serious ramifications
skimmed the investors’ confidence Bitten badly - not once, but twice – investors became
noticeably shy and even perceptibly paranoid. As a consequence, secondary market
slipped into slumber; primary market passed into passivity. The damaging developments,
however, had one redeeming feature; one favourable fall out: Least resistance to the
reform at the market. The reform was needed to address the inadequacies and enhance the
efficacy of the market.

Improvement

The recent years witnessed significant reforms in the capital market. It is well known that
trading platform has become automatic, electronic, anonymous, order-driven, nation-wide
and screen-based. Shouting and gesticulations have yielded place to punching and
clicking. Speed and efficiency are the hallmark of the current system. Across the system,
multitude of market participants trade with one another anonymously and simultaneously.
On any trading day, more than 10,000 terminals come alive, in 400 towns and cities;
information is flashed on real time basis. Equal opportunity is provided for all concerned
to access the information. Transparency is ensured in respect of dissemination of
information, price and quantum of the order; but, member’s identity is sought to be
hidden to prevent any bias in response. Today, a trading member need not wend his way
to the Jeejeebhoy Tower in Dallas Street, Mumbai or to any stock exchange building
elsewhere; he can comfortably sit at his computer terminal and execute the order.
Laptops, palmtops and hand mobiles, in fact, challenge the relevance of the brick and
mortar.

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Another material development, which proved to be of immense relief to the investors, was
dematerialisation of the scrip’s. Now 99% of the scrip’s in the market are dematerialised.
Almost 100% of the trades are in D-mat form. Inconvenience of physical custody and
transfer, tedium of intimating change of address and problems of bad delivery, late
delivery, non delivery and the risks of forgery and frauds have virtually disappeared – or
shall I say - have been dematerialised! The benefit is relished but not the cost. We should
bear in mind the maxim – no cost, no benefit. There is no free lunch in this world. Still,
there is no denying the fact that there could be a possibility for reduction in the cost; such
possibilities are explored.

At the stock exchanges, robust risk management system has been put in place, Value-at-
risk margining and exposure limits, on-line monitoring of margins and positions, Clearing
Corporation and Settlement Guarantee Fund mechanism for trade settlement – all these
have made Indian capital market now arguably world class, in terms of transparency,
efficiency and safety.

Corporate bonds and Government Securities used to be traded via telephone exchange. A
beginning has been made for their trading on the stock exchange now. As is natural, the
weaning takes time!

Narayana Murthy Committee was asked to revisit its recommendations. Based on the
review, the recommendations have been refined, with an eye on practicality. These will be
formalised shortly. In the ultimate analysis, however, more than the rules and regulations,
codes and principles, the change of mindset is called for. Good Corporate Governance is,
after all, an ethical principle and value-proposition. Today, it is realised that ethics and
business do mix and mix well. I am given to understand that there is empirical evidence to
establish causal relationship between good Corporate Governance and sustained corporate
performance. Two Credit Rating Agencies have come up with their own methodology to
rate the corporates according to their governing standards, linking it with wealth creation,
management and distribution. Be rest assured, such a rating is not mandatory. But, may
be, in course of time, the market and economic compulsions would make it a preferred
option

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 Recovery

During the last one year, Indian capital market has been regaining its optimism Globally
recognised economic fundamentals of the country and widely perceived robustness of the
Indian Capital Market system have gradually restored the confidence of the investors,
global and local, in the Indian market, to a substantial degree. During the last one year,
the sensex has risen by over 75%. The Indian capital market has out performed many in
the world. More importantly, the primary market too has perked up. The depth and
liquidity of the market and its absorbing capacity has been indisputably proven. The fear
of failure of PSU disinvestments turned out to be unfounded. Some mistakes have
occurred. To err is human and occasional systemic fault / fatigue is not uncommon.
Mistakes may happen and do happen; but they should not lead to paralysis, panic and
cynicism; nor should they be allowed to be exploited. Mistakes if any should be rectified
and rectified quickly and their recurrence prevented. If by ignorance, one mistakes, by
mistake one should learn.

Policy development in primary market:-

• The freedom to issue debt security without listing equity, hitherto

granted to infrastructure companies and municipal corporations,
has been extended to all companies.
• The SEBI DIP (Disclosure and Investor Protection) Guidelines,
2000 were amended. The main provisions include: permission to
Foreign Venture Capital Investors (FVCIs) registered with SEBI
and State Industrial Development Corporations to participate in
public issues through the book building route as Qualified
Institutional Buyers (QIBs);no lock-in requirements for the pre-
issue share capital of an unlisted company held by Venture
Capital Funds (VCFs)and FVCIs; removal of exemption from public
offer requirement in view of reduction in quantum from 25 per
cent to 10 per cent; and removal of the restriction of a minimum

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 public issue size of Rs. 25 crore in respect of an IPO through the
book building route.
• Since a substantial proportion of the non-SLR securities are
issued via the private placement market, RBI issued guidelines to
banks in June 2001, which relate, inter alia, to prudential limits on
investments, due diligence, and internal ratings in respect of
unrated issues. Further guidelines are proposed to be issued by
RBI with a view to strengthening the internal rating systems,
fixing sub-limits for privately placed securities, and disclosures
regarding issuer composition and non-performing assets.
• Listed companies have to maintain a minimum level of public
shareholding at 25% of the share issued.
• SEBI facilitated a quick & cost effective method of raising funds
termed as qualified institutional placement.
Secondary Market Developments:-
• SEBI notified the SEBI (Investment Advice by Intermediaries)
(Amendment) Regulations 2001.The main provisions are:
appointment of a Compliance Officer by market intermediaries
(like Bankers to an Issue, Credit Rating Agencies,Debenture
Trustees, Stock Brokers and Mutual Funds) to independently
report to SEBI on non-compliance with rules/regulations issued by
Government and regulators and restrictions on investment advice
by intermediaries and their employees on any security in the
publicly accessible media.
• Government constituted a National Advisory Committee on
Accounting Standards to be adopted by the companies under the
Companies Act.
• Stock exchanges were allowed (subject to conditions) to use the
Settlement Guarantee Funds (SGFs) for meetingshortfalls caused

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 by non-fulfillment/partial fulfillment of obligations by members,
before declaring them defaulters.
• Government of India‘s policy on foreign investment in
infrastructure companies in the Indian securities market.
• Initial issue expense and dividend distribution procedure for
mutual funds were rationalized.

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