Issue Proceeds Audit Imperative

The BSE president M G Damani (left) feels that there is a need for introducing a compulsory audit of issue proceeds to infuse confidence into the retail investor sentiments.

The government has to take efforts to bring back the individual investor in the market by giving tax benefits for investment in new issues, encouraging safety net mechanisms and ensuring compulsory audit every six months for funds raised through the primary market, he said.

In a pre-Budget interview, Damani underlined the expectations of the capital market from the Union Budget to be announced today by the finance minister P Chidambaram.

He called for re-introduction the carryforward system in the old format for bringing down the volatility in the capital market. According to him, the trading culture has changed today and it has become impulsive. "There are only intra-day or intra-hour traders and people have forgotten what investment is,'' he said.

On revenue measures from the Budget: The double taxation of dividend must go and companies which pay normal dividend out of post-tax profits should not be taxed again.

This approach has been successfully implemented in Australia. The long-term capital gains tax payable by resident and non-resident Indians, HUFs and Indian companies should be brought down to 10 per cent, on par with the current levels paid by FIIs.

"Section 80CC to be re-introduced to encourage investment in primary markets raising eligible amount to Rs 50,000. Deduction from the taxable income should be 50 per cent of the amount invested,'' he added.

The sagging mutual fund industry will get a major boost if Section 80M is re-introduced to encourage investment in mutual funds by corporates. This should be extended to all mutual funds.

On non-revenue measures: Firm policy is awaited for investment of corpus by domestic provident funds and pension funds to invest in the stock market. LIC, GIC and other insurance companies should be allowed to invest about 10 to 11 per cent of their corpus. Institutions like UTI can design tailor-made schemes for banks to invest in the secondary market. Banks also need to encouraged to issue advances against shares.

However, there is a need to have adequate safety measures.

There is a need for having a compulsory audit of issue proceeds by promoters. Any deviation from the object of the issue needs to have an approval of at least 75 per cent of the shareholders. Those who express their dissent need to be given an exit route from the investment.

Participation by individual investors is essential even for the targeted disinvestment in public sector enterprises. The government should also consider allowing badla trading as demanded by BSE wherein market players can take a long term view about stocks and invest their monies on merit of the stock.