On Your Marks, Get Set... Go

The year 1997 will be remembered as an year of several firsts. The Securities and Exchange Board of India initiated action against any company for the first time for allegations of insider trading, the first ever net outflow of foreign institutional investments and the first operational depository. The emphasis was on consolidation.The overall sentiment in the stock market remained bearish with the stock broking business passing through a phase of restructuring. The market witnessed a drastic fall in the money raised through the primary market. The successful implementation of the margining and price bands on stock exchanges ensured that defaults did not hamper the functioning of any bourse.

Primary market

The primary market witnessed more regulations during 1997 with Sebi issuing a notification asking all merchant bankers to segregate their capital market and non-banking finance company activities. While most of the leading merchant bankers have agreed to do so, SBI Caps and PNB Caps have decided to seek exemption in the issue. The bookbuilding exercise was close to witness price discovery for the Nirma issue when it was deferred to the new year. The year witnessed a dramatic fall in the money raised by the corporate sector through public offerings. Promoters could not raise capital through the primary market due to poor secondary market conditions. The year witnessed 128 public issues mobilising a sum of Rs 5,032 crore showing a drop of 89 per cent as compared to 1996. Private placements of debt were to the tune of Rs 13,000 crore.

Secondary market

In January 1997, every single broking institution in the country predicted a year end-level for the BSE sensex at 4,500-levels. In December, the sensex hovered at around 3600-levels. A fluid political scene, coupled with dramatic bonus announcements by companies like Reliance, Infosys gave the market its moments. However, the overall sentiment during the year remained bearish as the year witnessed the first ever net outflow from the foreign institutional investors. The stock broking business continued to be dominated by top 10 broking institutions in the country. Earlier in the year, Bombay Stock Exchange announced that 75 per cent of the delivery business is handled by foreign brokers. Lower deliveries on bourses continued to be a key topic of debate during the year. Sebi has also set up a working group to look into the matter. However, the year only witnessed discussions on the issue as squaring up pushed trading volumes to new heights. Volatility on bourses and control mechanisms of stock exchanges also

found places in headlines.

Mutual Funds

The mutual fund industry witnessed a jump in private sector mutual fund collection this year. Innovative schemes were launched with permission being granted for mutual funds to invest in overseas markets. The year also witnessed UTI getting flush with funds and launching sector specific funds in the overeseas markets. The move to bring UTI under the purview of Sebi was consolidated with UTI forming three AMC committees to monitor operations of several schemes. Yet, private sector mutual funds want the UTI Act to be repelled as it continues to give special umbrella protection to it. Amfi has mooted during this year the idea of setting up a new Indian Mutual Fund Act.

Depository

The new year will witness the commencement of institutional trading on bourses in electronic form as the Sebi prescribed January 15 deadline approaches for ensuring dematerialisation of their holdings. The dematerialisation is expected to pick up as the date closely approaches. The debate on whether exchanges can go ahead for insisting compulsory demat trading in these stocks will continue even in the new year. The BSE also announced the formation of Central Depository Services Ltd to provide electronic share transfer.