Capital market buoyancy to continue

The strong fundamentals of the Indian economy in tandem with higher growth would help sustain the interest of domestic and foreign investors in the Indian market despite the possible subdued global growth, according to the Economic Survey 2007-08.

The Survey also says that Indian companies would step up their access to the primary market to raise resources both through equity and debt issues.

The total equity issues mobilised was Rs 58,722 crore, of which Rs 33,912 crore was accounted for by the initial public offerings (IPOs). The total number of IPOs issued in 2007 was 100, compared to 75 in the previous year.

"If the recent pick-up in the amount of resource mobilisation by mutual funds and the assets they manage are any indication reflecting increased preference for investment in the capital market via mutual funds, the resources available with the Indian financial institutions would increase. This would find its way to the capital market," said the Survey.

The Survey asserted the need for "policy initiatives to be well calibrated to transmit the right policy signals unambiguously. The regulators need to remain proactive and vigilant to obviate the occurrence of any irregularities in the conduct of business in the market.

The Bombay Stock Exchange (BSE) Sensex and National Stock Exchange (NSE) Nifty rose by 47.1 per cent and 54.8 per cent, respectively on a point-to-point basis during 2007. But in the period January 2006 to December 2007, the volatility of weekly returns of Indian indices was higher as compared to indices outside India such as S&P 500 of America and Kospi of South Korea.

The number of foreign institutional investors (FIIs) increased from 1044 in 2006 to 1219 in 2007, a jump of 16.7 per cent as compared to 27 per cent in 2006.

Assets under management (AUMs) of domestic mutual funds grew by 1.7 times from Rs 3.23 lakh crore during 2006 to Rs 5.50 lakh crore in 2007. Of the total AUMs, the share of AUMs under income schemes grew by 34.45 per cent in 2007 as compared to share of AUMs under growth schemes, which saw a fall of 5.42 per cent.

"The sharp increase in funds flowing into mutual funds during 2007 was partly due to buoyant equity markets and partly to efforst made by the Indian mutual funds to introduce innovative schemes," said the Survey.

Valuation of Indian stocks as reflected in the price to earning multiples of around 27 times at end December 2007 was the highest among emerging market economies such as South Korea, Thailand, Malaysia and Taiwan.

At present, the market capitalisation as a per centage of GDP is 150, the higher than economies such as China, Japan, South Korea and America. India ranks after China in terms of market value of its stocks ($ 1638 billion as on December 30, 2007).