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Recent Trends in Capital Market1

Recent Trends in Capital Market1

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Published by: hittu- on May 04, 2010
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11/23/2010

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RECENT TRENDS IN CAPITAL MARKET
Before we look at the recent trends in the Indian capital market, a retrospective glance at themarket 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 likewidespread industrial sickness - not attributable entirely to external factors -capacityoverhang constricting growth, unsustainably high IPO pricing by companies who chose not tomix 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 aconsequence, secondary market slipped into slumber; primary market passed into passivity. Thedamaging developments, however, had one redeeming feature; one favourable fall out: Leastresistance to the reform at the market. The reform was needed to address the inadequacies andenhance the efficacy of the market.
REFORMATION
 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 andefficiency 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, morethan 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 isensured 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 tradingmember need not wend his way to the Jeejeebhoy Tower in Dalal Street, Mumbai or to any stock exchange building elsewhere; he can comfortably sit at his computer terminal and execute theorder. Laptops, palmtops and hand mobiles, in fact, challenge the relevance of the brick andmortar.
 
 
An investor, today, need not wait, with his fingers crossed, for a fortnight or more, for getting crossed cheques or crisp notes for the sale proceeds of his securities. The tradingcycle has been shortened to T+2. This shortening of the cycle has been done in a phasedmanner but in a rapid succession ± from T+5 to T+3 to T+2, all in a matter of two years.
 
Another material development, which proved to be of immense relief to the investors,was dematerialisation of the scrips. Now 99% of the scrips in the market aredematerialised. Almost 100% of the trades are in D-mat form. Inconvenience of physicalcustody and transfer, tedium of intimating change of address and problems of baddelivery, late delivery, non delivery and the risks of forgery and frauds have virtuallydisappeared ± or shall I say - have been dematerialised! The benefit is relished but not thecost. We should bear in mind the maxim ± no cost, no benefit. There is no free lunch inthis world. Still, there is no denying the fact that there could be a possibility for reductionin 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.
 
Antiquated and abused badla system or ALBM stands abolished. In its place, for hedgingand trading purposes, a number of derivatives ± in the form of futures and options, bothindex-based and stocks-specific have been introduced. The sophistication of these products have not scared away our brokers and investors. Instead, with their nativeintelligence, they are as comfortable in the F&O Quarter as a fish in the water. Thevibrancy of F&O segment has surpassed the cash segment in terms of daily turnover within a short period.
 
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, theweaning takes time!
 
Our accounting standards are already principle-based; they have been aligned withinternational standards almost in all aspects, barring one or two. Our disclosurerequirements, both initial and continuing, are on par with global practices.
 
 
The corporate governance and corporate performance do reflect and get reflected in theconditions of capital market. As a market regulator and protector, SEBI is concerned withcorporate governance practice on an ongoing basis. According to the EconomicIntelligence Unit Survey of 2003 regarding corporate governance across the countries,³Top of the country class, as might be expected, was Singapore followed by Hongkongand, somewhat surprisingly, India.´ It is significant to note that Singapore and Hongkongclaiming the top positions, was not a matter of surprise, but India coming as third,surprised the world! It shall be our collective endeavour to eliminate the³surpriseelement´. As part of its endeavour towards continual improvement, SEBI has gotcorporate governance code and practice reviewed, by Narayana Murthy Committee. TheCommittee¶s recommendations for refinement were evolved through consultative process, transparent deliberations and democratic approach. These were posted on SEBI¶swebsite for 21 long days. Thereafter, they were got incorporated in Clause 49 of ListingAgreement. No sooner was this done, the corporate quietitude was disturbed and a spateof representations followed. The three major aspects, which disturbed the corporates,related to definition of independent directors, their nine-year term and whistle blowing policy.
RESURGENCE
 During the last one year, Indian capital market has been regaining its buoyancy. Globallyrecognised economic fundamentals of the country and widely perceived robustness of the IndianCapital 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 byover 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 absorbingcapacity has been indisputably proven. The fear of failure of PSU disinvestments turned out to beunfounded. 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.

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