Year 1998: Winter of discontent for markets

While the Sensex (Bombay Stock Exchange sensitive index) had a roller-coaster ride, themarket capitalisation (the total market value of all listed shares) also moved in a similar fashion and investors are still counting their losses at the end of yet another dismal year. Thanks to the nuclear tests, sanctions, downgrading, US-64 affair, Asian crisis, price rigging and political uncertainty, the market cap fell from Rs 4,95,000 lakh (when Sensex was 3633 a year ago) to Rs 4,40,000 crore (when Sensex touched 3055 by December 31).

The market cap was nearly Rs 6,00,000 crore (when Sensex was at 4322 on April 22) when the `rally’ led by Harshad Mehta was at its peak. A syndicate of brokers, who are allegedly close to the erstwhile Big Bull, rigged up prices in several stocks like BPL, Videocon, Sterlite and Zee in the first half of the year. When the rally ran out of steam, share prices collapsed and the Sensex fell to the 3,000 level. Neither the market regulator SEBI nor the stock exchanges could prevent the fraud on the investors.

The year started with an uncertain outlook on the back ofSouth-east Asian crisis followed by general elections resulting in a new government in the parliament. As the BJP government took office at the centre, the stock markets witnessed an uptrend. This, however, later collapsed as the government was constantly under pressure from Jayalalitha’s threats to withdraw support. Simultaneously, companies came out with poor financial results — profits took a severe beating — for the year ended March 1998 and later for the half year ended September 1998.

The market took a knock when India conducted the nuclear tests on May 11 after a gap of 24 years, thus inviting economic sanctions from the US and Japanese governments. In fact, the period from May 22 to May 28 witnessed the greatest ever fall in a week by the index since Standard & Poor’s, the US-based rating agency downgraded the outlook towards India from stable to negative. During this period, foreign funds started pulling out from the India.The cup of woes for the markets has been brimming over following thesedevelopments. As South-east Asia was on the brink of a second meltdown in June, the Indian markets were also under tremendous pressure. The currency and stock crisis in major Asian countries like Thailand, Indonesia, South Korea, Hong Kong, Malaysia and Philippines spilled over to the Indian markets as well. The Indian rupee also experienced pressure following the slump in other Asian currencies.

However, the Reserve Bank of India stepped in and announced several measures to prop up the rupee.

The bolt from the blue, however, came in October. The news of problems in Unit Trust of India’s flagship scheme US-64 led to a crash in the bourses. The confidence of investors was severely eroded by the revelation that the corpus of US64 was eroded by over Rs 3,000 crore due to the fall n share prices after the nuclear tests. UTI was forced to dip into reserves to py 20 per cent dividend. Sensex on one single day even crashed by 225 points after the US-64 affair surfaced in the market. There was also a belief amongmarketmen that UTI which was facing mounting problems will not be very active in the market. Result: Sensex touched the 52-week low of 2741.22 by October 22.

The market remained relatively calm in November with the index losing 1.76 per cent in the month. In December markets showed some positive movement mainly in anticipation of important bills — Insurance Bill, Patent Bill, Companies Bill — going through in the winter session. However, all these bills were deferred till the budget session. The uncertainty associated with the passage of these bills, however, kept the Sensex within the 3,000 range.

One success story was the rally in software shares. While many of the leading scrips like Telco and SBI touched rock-bottom levels, software shares like Infosys, Satyam Computer and Pentafour touched new peaks. Satyam, in fact, is the most highly traded share on the exchange these days.

The role of the SEBI came under fire, especially in the price rigging episode. Market experts point out SEBI came into thepicture after riggers came, manipulated the prices and got out with the booty. There was laxity in the vigilance mechanism. Similarly, the regulator was caught on the wrong foot in the takeover code as companies took advantage of the loopholes in the norms. Now the SEBI is revising the code.

The litany of investors woes is endless. Over 3,000 companies listed on the BSE are now quoting below the par value of Rs 10. Out of this, nearly 50 per cent — i.e. 1,500 companies — is traded below Rs five per share. The project status, fund utilisation and financial performance of these companies also reflect the sorry state of the capital market. Consider these figures. There were 1,350 initial public offerings (IPOs) in 1995-96. As per Prime Database, these are now down to a meagre 11 in the first seven months of the 1998-99. Companies largely opted for the private placement route and raised Rs 27,069 crore through this route in 1997-98 as against Rs 15,066 crore in the previous year. The depression in the primarymarket has left many merchant bankers penniless, forcing many of them to down their shutters.

What is in store for investors and corporates in the new year? With many of the factors which affected markets still lingering, marketmen are keeping their fingers crossed. Will the winter of discontent continue for millions of investors?