Budget ignores primary market

Surprisingly, mutual funds do not even find a mention in the budget. “Protection of small investors can be gradually achieved by weaning them away towards mutual funds. Various proposals submitted by the Association of Mutual Funds in India (AMFI) for growth of this industry have been totally ignored,” according to Prime Database.

Though not strictly budgetary measures, the budget in order to give a direction and improve sentimentscould have addressed some critical areas which have destroyed the primary market. “These include better, correct and timely disclosure, greater accountability and finally stringent punishment to the corporate offenders,” Prime said.

“The investor will come back to the primary market if he has to only manage the risks on the equity investment, he is now too scared to expose himself to the risks of fraud. That a complete revamping of the legal infrastructure is essential is also only an overstatement. Some specific measures in these directions would have helped,” it said.

There were many market demands to help kickstart the revival. For one, the primary market had been clamouring for PSU disinvestment. The budgeted target is only Rs 5000 crore (the issues being from GAIL, IOC, Concor and VSNL) and nothing specific has been mentioned about this disinvestment to the domestic investors. As these four issues are most likely to go the GDR route, the domestic investor many be ignored. The demand for such adisinvestment at a discount, of course, now appears far-fetched.

There was also an urgent need to bring about greater efficiencies in the market system. While full-scale automated trading has already been achieved, 100 per cent dematerialisation of all existing and new scrips is essential. There is also a need to introduced compulsory book building for all new issues irrespective of issue size. “The budget could have given some commitments in this regard. Other market suggestions like compulsory market making for IPOs and safety net in public issues have also been disregarded,” it said.

Another area which needed an urgent review is the entry barrier guidelines imposed by SEBI which are inhibiting the growth of quality equity market. Some other outstanding issues like buyback of shares and abolition of par value, need to be acted upon soon, it felt.

The primary markets often revive with a booming secondary market. Unfortunately, every little is perceived in the budget which will help to improve theprofitability, and efficiency of the industry and hence the slide in the sensex. The only welcome announcements are in terms of setting up an expert group for streamlining transfer of securities and for a speedy introduction of derivatives.

Prime said the Indian industry is presently passing through a crisis and a substantial restructuring is inevitable. The budget could have introduced some specific package and incentives for encouraging mergers and acquisitions.

The primary capital market has been in doldrums for three years in running. Total public issue mobilisation through both debt and equity has fallen from Rs 13,311 crore in 1994-95 to a dismal Rs 3,061 crore in 1997-98. Worse affected is the private sector which, in the post economic reforms era, was seen as the main vehicle for growth. Unfortunately, the equity mobilisation by private sector IPOs has fallen from Rs 9,267 crore to a paltry Rs 304 crore over the same period.