Controlled Speculation Can Lend Depth

Indias capital markets will witness increased efficiency due to electronic trading and settlement procedures.

An important aspect will be the introduction of the depository which will play a crucial role in achieving more efficiency.

The electronic fund-based transfer mechanism will result in quick service to the investor. Besides this, trading can be done on the internet through VSAT, where one can access databases on the net.

When these systems are in place, the issuance cost will go down substantially.

The pricing of stocks will improve eventually as the market absorbs the concept of book-building. The time-needed period for receiving funds in a public offering from the day of pricing will thus be shortened. There is a possibility for increase in the number of takeovers and more foreign funds, including venture capital, pension and others. The asset management companies will play a greater role as the retail investor will come to the market through them.

Takeovers may become an attractive business proposition after the implementation of the Bhagwati Committee recommendations as small domestic players will merge with large ones.

We may also witness the formation of a `take-over fund to finance these take-overs.

On structural changes required in markets:

There is a need for having controlled speculation in the market to provide adequate depth and stability to our markets.

Besides this, we need to evolve an effective risk transfer mechanism and for this develop instruments to cover economic risks.

The introduction of the futures and options trading will also provide for risk management.

There is a possibility of consolidation of stock exchanges in future to form a single and efficient trading system.

On regulatory changes:

There is need for an efficient self-regulatory organisation (SRO) system for monitoring trading practices on the lines of the UK system.

A clear-cut role needs to be spelt out for the Reserve Bank of India which needs to focus more into forex trading. Regulations should be framed using prudential limits instead of ad-hoc.

There is also a possibility of the NBFCs and manufacturing companies not being permitted to raise funds through fixed deposits. They would then have to follow a proper debt or bond route.

On change in profile of market players:

The opening up of the insurance sector, pension funds and liberalisation of the investment pattern for the fund managers will change the profit of the market player dramatically.

The portfolio managers need to given greater flexibility in taking investment decisions and restrictions need to be eased on the issue. There will be a consolidation of non-banking finance companies (NBFCs) and stock broking business in terms of operations.