Corrective Phase On: Anand Mahindra

While expressing his views on the Challenges of the emerging capital markets in India at the Indian Merchants Chamber, Mahindra spoke from the issuers perspective. He said: The market is being sustained on the steroids provided by FII money. The present downslide in the market was expected as FIIs had already expressed their concern about the high P/E ratios and lack of adequate information on the end-use of funds by issuers.

He said when the stock markets were witnessing an unprecedented bull run in 1992, the corporate sector was actually worried and there were several debates on the matter. When the market was witnessing a massive bull run, it created a sort of disillusionment among the corporates. We were wondering if it made any business sense to continue to bother about the 18 to 20 per cent return that they get on their invested capital besides labour and other production problems when brokers were making around 30 per cent a day, he said

 

The market has learnt from its past experiences and is presently witnessing a corrective phase, he added.

Mahindra spoke about the change in the mindset of the issuer over the last two decades. He said: The pre-1980 era was a period of high leverage for corporates where institutions were the only source of funds. Stock exchanges were apparently controlled by a few business families and markets were exceedingly inefficient. There were problems pertaining to wealth tax and issuers had to issue equity at par which was an expensive exercise. There was no transparency among issuers.

According to Mahindra, the emergence of Reliance Industries brought the equity cult to the market. He said: The next era was the Ambani era which was a sort of anti-establishment period. They showed the way to access the capital market. The period saw investor base of companies widening, and businessmen were more comfortable with transparency and began rewarding shareholders through higher dividend and bonus. Growth became a new mantra in the market.

The phase when the country initiated its liberalisation programme, Mahindra terms as an efficient one. He contended: This was a period of increased competition and boom. Issuers wanted to peg the cost of capital low. Investors who invested during this time lacked selectivity. Bankers also were not selective when it came to lending which resulted in distortion of incentives and values which finally resulted in the stock market scam.

Then followed the globalisation phase, said Mahindra, where Reliance once again showed the market a way to raise funds for expansion with its GDR issue. This resulted in further widening of the investor base. There is more money in the GDR route for the intermediary, as disclosures to be made for listing in an international offering are more stringent.