Markets buoyant, but focus shifts to Mr Bond

At the same time, the survey highlighted the need to remove weaknesses in the bond market. A strategy has to be chalked out for the development of the bond market. India is an ideal environment for a liquid bond market, given large public debt issuance, and sophisticated exchange institutions.

“A striking manifestation of the weaknesses of the design of the bond market has been observed in the recent period, in the form of a significant dropoff of turnover, even though the market size has been steadily growing through large scale public-debt issuance,” the survey said.

The public debt market also continued to languish at low levels and most primary issuance of debt securities took place through private placement, the survey added.

The sound legal architecture underlying Sebi and the equity market, the shift to rolling settlement in 2001 and no entry barriers in financial intermediation have enabled the success of the equity market, it said.

Pointing out a rebound in primary market issue, particularly in initial public offerings (IPOs) of equities in 2004, the survey said household investor participation increased based on stock market index returns of 72 per cent in 2003 followed by 11 per cent in 2004.

The survey makes a clear case for FIIs in the equity markets, saying their entry has strengthened the market and help fuel liquidity. The growth of FII accounts indicates ‘‘a more diverse, and hence more stable, pool of foreign investors.’’ While volatility in the equity markets has come down in the past two years, the Survey notes that Indian markets are considerably more volatile when compared to mature markets like the US.

Finally, the mutual funds industry remains stagnant, but assets in growth funds registered a sharp rise in 2004, pointing to a highly retail market, avers the survey.

FIIs, ipos rule

• FIIs make just 5.8% of stock trading, purchased Rs 2,69,877 crore and sold Rs 2,32,840 crore during 2004 in spot and derivative markets.

• The volume of public issues rose roughly five times to Rs 35,859 crore in 2004.

• Accounts at NSDL, a proxy for participants in the market, up 29% to hit 6 million.

• Mututal fund industry has stagnated with assets under management at nearly at Rs 1,50,537 crore at end-2004.