Daily Excelsior...Business

1998-A year of confusion for capital market

MUMBAI, Dec 26: Performance of the capital market during the year 1998 was a clear reflection of uncertainty and confusion in the political arena that dragged down the economy throughout the year.

Reflecting the downtrend, the Bombay Stock Exchange (BSE) sensex and the S P CNX index on the National Stock Exchange (NSE) have recorded a slump of 695 points or 19 per cent and 218.30 points or 20 per cent to 2963.45 points and 861.10 points against the last year’s close of 3658.98 points and 1079.40 points respectively.

BSE President J C Parekh said that performance of stock markets in the year was lacklusture. Barring Pharma, Info-tech, Fast Movable Consumer Goods (FMCG), and MNCS Scrips, the market has gone down substantially affecting investors in general and Unit Trust of INdia (UTI) the country’s largest mutual fund particularly.

The benchmark index of the BSE took a roller coaster ride, starting from 3694.62 on January One, touched the high of 4280.96 (April 21) and low of 2764.16 (Oct-20) to end at 2963.45 points during the year.

The show at the country’s largest and leading bourse, the NSE was also not much different than that of the BSE, where the CNX nifty opened at 963.45 points, touched the high of 1159.35 (April) low of 817.75 (Nov) and closed at 861.10 points.

However, surprisingly, the S P CNX nifty junior posted an handsome gain of 271.70 points or 22.85 per cent to Rs 1460.70 from previous year’s close of 1189.00

Mr Arup Mukherjee, CEO at the India Index Services and Products Limited (IISL), a joint venture of CRISIL and NSE, has attributed the gain in the nifty’s junior to the remarkable performance by info-tech sector which had a largest weight of 22.49 per cent in the index.

Stock markets in Japan and Hong Kong also reported heavy slump during the calander year-1998.

The nikkie index at Tokyo fell sharply by 1562.20 points to 13706 on December 24, from the last year’s close of 15268.93 points. The hang-seng index at Hong Kong, which also reported record volatility during the year, recovered miserably from the year’s low of 6544.79 to 10292.20 points on December 24, recording a loss of 430.06 points from the last year’s close of 10722.26 points. The Foreign Institutional Investors (FIIs) have suffered heavy losses worldwide due to in the South-East currency crisis which was also one of the major reasons behind the major fall on the leading Asian bourses.

Peregrine Securities India was the fifth major FII to close down its operations in India due to tough market conditions, which arose after the economic crisis in South-East Asia. The four others which have closed down their operations were BZW, Natwest Markets, Deutsche Morgan Grenfell and ING Barings.

FIIs, which have emerged major market players on the stock markets in India during last couple of years, have witnessed very discouraging trend and reported continues outflow in their investment during the year. The FII’s reported net outflow of Rs 500 crore during the year, analysts said.

Mr J C Parekh underlined the need of creation of large size mutual fund which can act as a buffer to face FII’s selling spree.

The BSE chief blaimed the Union Government for discouraging the stock markets. He said that inability of the BJP-led coalition Government at the Centre to take hard decisions like exit policy, selling of PSU shares, Amended Companies Act, Securities Control Act and allowing features and options to be traded on the bourses also affected market sentiments badly on the bourses.

"In fact no major important decisions could be taken due to constraints faced by the Government. This has been taken as major weakness and investors are not coming forward to invest in the market", Mr Parekh said.

Markets made cautious start here in the wake of South-East Asian currency crisis and the general elections in the country.

None of the major political party could establish majority and the BJP with alliance parties came forward to form the Government. The market welcomed the BJP-led coalition Government wholeheartedly as the BSE sensex witnessed upward march immediately after the formation of new Government.

The FIIs who were cautious on the outcome of the elections also turned positive by witnessing positive net investment on the BSE in the month of February, March, April. The FIIs have reported highest net investment of Rs 503.40 crore of the year in April while they reported highest outfllow of Rs 506.40 crore in October.

The market capitilisation on the BSE registered an increase of Rs 3,53,429 crore between January 1998 and (Rs 4,69,513 crore) and April 21, 1997 (Rs 6,22,942 crore) due to change in sentiments. However, the positive trend could not sustain for a long as the markets reacted sharply to India’s nuclear tests as well as the economic sanctions which were imposed by the United States on India for conducting the tests.

As a result of nuclear tests and the sanctions, the market capitalisation has come down to Rs 5,01,891 crore on June 10, wiping out almost four-fifth of the gain and the panic continued for long period.

The revised credit policy for the first-half of 1998-99 announced by RBI Governor Bimal Jalan on April 29, did not enthuse the securities market. In fact, soon after the announcement of the policy, the market index fell led by decline is banks scrips.

The maiden union budget of the BJP-led coalition Government presented by the Finance Minister, Yashwant Sinha has also failed to enthuse the stock market.

In order to bring back confidence of common investors in the market, the SEBI has cracked down on the companies that have raised funds in the market in a fraudulent manner and has launched an exercise to ascertain how the funds raised through public offering in recent years have been deployed.

The market sentiments were also adversely affected following the report of UTI suffering major losses in the US-64 scheme. The US-64 scheme, which has a corpus of Rs 22,000 crore had shown a negative balance in reserves to the tune of Rs 1098.49 crore in September.

The recent attack by the United States and Britain on Iraq also affected the market sentiments badly. However, the decision of stoppage of further attacks by the US bring back normalcy in the last days of the year.

Looking at the depressed conditions in the country’s stock markets, Prime Minister Atal Behari Vajpayee announced buyback of shares as a part of the economic package to boost the market.

The markets welcomed the announcement, however, several companies who came forward to take advantage of the revival package are waiting for the certain amendment in company laws.

The Government also announced opening of the insurance sector for foreign companies. However, legislations regarding IT and the Patent (Amendment) Bill could not be passed in the current Parliament session. The postponement of these important decisions also demoralised the marketmen and affected sentiments badly towards the end of 1998.

Total turnover on the BSE and NSE registered an increase of Rs 64,138 crore and Rs 26,067 crore to Rs 2,60,091 crore and Rs 4,06618 crore from the last year’s total turnover of Rs 1,95,953 crore and Rs 3,80,551 crore.

The BSE’s broad-based BSE-100 index declined by 272.55 points to 1314.05 points from the last year’s close of 1586.60 points. The BSE-200 and dollex indices closed lower by 50.65 and 31.33 points to 303.80 and 118.90 points from the previous year’s close of 354.45 and 150.23 points respectively.

The NSE continue to be ahead of the BSE in terms of business volume for the third consecutive year.

The annual report of the Securities and Exchange Board of India (SEBI) for 1997-98 clearly brings out the dominant position that nse has come to occupy in Indian capital markets. Of the total turnover of Rs 9,08,691 crore by the 22 stock exchanges in 1997-98, the trading turnover of NSE was the highest at Rs 3,69,934 crore and accounted for about 41 per cent of the total. Almost double the share of the next largest stock exchange.

NSE Managing Director R H Patil said "performance of the stock markets in India was not very satisfactory during this calender year and the future prospects of the market is also uncertain in view of unstable political situation in the country. However, Mr Patil was optimistic on the opening up of insurance sector to the foreign companies. He said if it happens, it will certainly give boost to the market sentiments in the coming year.

The continued Southward trend on the stock markets however, could not halt the restructuring work at both the BSE and NSE throughout the year.

The BSE has promoted company, Central Depository Services Limited for dematerialised trading, settlements. It will also act as a depository. The company will start its operations very soon. The BSE is also in advanced stage for launching of derivatives trading as soon as the SCRA Act is amended. The BSE is willing to start features on sensex.

The BSE finally reconstituted the sensex bringing in Infosys Tech, NIIT, Castrol and Novartis by pulling out Arvind Mills, great Eastern Shipping, SAIL and IPCL.

The reconstituted sensex has became effective on the exchange from November 16.

The NSE has tried to be a one step ahead over the BSE and conducted mock trading in index-based futures and completed certification. The NSE has established a joint venture with S P, the world’s largest rating agency and CRISIL to provide index services.

The year 1998 turned out a restructuring year for the Over the Counter Exchange of India (OTCEI). The exchange is being repositioned as a supplementary exchange to the NSE in order to counter the threat of Inter-connected Stock Exchanges of India (ISE).

As a part of major revival package, OTCEI management has recommended that the exchange should have both quote and order-driven market-making systems in the listed category. Another recommendation was those scrips which are not listed on NSE but are listed on all other exchanges should allowed to be traded on OTCEI.

Meanwhile, the Planning Commission has also suggested compulsory listing of all new issues on otcei before graduating to other bourses. In order to increase liquidity on the exchange. The plan pannel has called for increased Foreign Institutional Investment above the prescribed limit on the other bourses.

The NSE deputed Mr Joseph H Bosco, as the Managing Director of the OTCEI in April which was considered as a first major bid to revive the OTCEI. Armed with scheme for revival, OTCEI is doing the unconventional, it is trying to snap most of its ties with the past.

The exchange has relaunched trading with a common trading platform for both the listed and permitted category securities from October this year. The OTCEI has decided to place a number of its scrips in the permitted category. These stocks are one of the largest traded scrips at the large exchanges as well. For mid-cap and low-cap it stocks, a separate segment is also proposed, according to OTCEI sources.

The OTC index opened at 112.22 points, losing 6.33 points at 111.22 on December 24 against the previous year’s closing of 117.75 points.

The Inter-connected Stock Exchange of India Limited (ISE), promoted by the Regional Stock Exchanges in the country, has already got recognition from the SEBI. According to ISE sources, live trading on this new exchange is likely to be started in the next month.

The SBI Capital Markets Limited in its latest analysis report stated that year 1998 was the year of software companies, the software boom is expected to continue in 1999. Pharma sector valuations should also be buoyant and would be led by MNCS after the Patents Bill is passed. Commodities like cement, which are protected against imports, may also have a good year, if the proposed spending on infrastructure happens. Various power projects are approaching financial closures and demand for steel should go up in the next few years.

In the automobile sector, the two-wheeler sector continues to be buoyant. Truck sales are, however, low. Margins in the refining sector will improve further.

Barring political uncertainty, and assuming stable external environment, 1999 may turn out to be a good year for Indian Stock Market, the report added. (UNI)

IOC, ONGC, BPCL, GAIL to buyback shares

NEW DELHI, Dec 26: Government will take to the buyback route in four oil public enterprises and franchise Chennai and Calcutta telecom circles to cash rich Mahanagar Telephone Nigam (MTNL) to mop up Rs 10,000 crore.

The four oil PSUs are cash-rich Indian Oil Corporation (IOC), Oil and Natural Gas Corporation (ONGC), BPCL and GAIL which have huge reserves to fund buyback of shares from the market and buyback of shares of these enterprises is expected to fetch Rs 5,000 crore, official sources told.

IOC had free reserves of Rs 10,151 crore, ONGC Rs 18,637 crore, BPCL Rs 2350 crore and GAIL Rs 2292 crore totalling about Rs 34,000 crore at the end of last financial year, 1996-97.

The franchising move which would earn a revenue of Rs 5,000 crore, follows the suggestion made by the Tamil Nadu Chief Minister M Karunanidhi to Union Government that the Tamil Nadu telecom circle be handed over to mtnl for improved and efficient service, sources said.

MTNL which has expressed its desire to takeover Chennai and Calcutta telephone operations, proposed to participate in the next round of bidding for basic services which will cover these two metropolis.

Buyback issue is top in the agenda of the next meeting of the core group of secretaries which is expected to workout the modalities.

The Government has targeted to collect Rs 5,000 crore through disinvestment this financial year but has earned only Rs 2 225 crore by offloading seven million shares of Container Corporation of India.

The generation of Rs 10,000 crore from these measures is expected to greatly help in controlling fiscal deficit which has been widening particularly with massive shortfall in indirect collections.

Coupled with this, Government expects to garner Rs 1,500 crore from Kar Vivadh Samadhan Scheme defying all expectations that fiscal deficit, which is targetted to be 5.6 per cent of GDP, would go away.

Because of economic slowdown and industrial recession, there was bound to be some slippages in fiscal deficit targets, sources said and added that besides the four oil companies, few other cash rich PSUs like NALCO and BHEL might be considered for buyback of shares in the second stage.

The whole exercise of identifying the companies that have the reserves to buyback and determining the exact quantum of amount to be raised are expected to be finalised by January end.

In view of the capital market being bearish in both domestic and international, buyback route would be better than disinvestment route as it (buyback) would entail captive buying in which Government would pay from its reserves and later extinguish its shares.

Another advantage would be that Government equity would remain the same in the PSUs as a proportion to total equity unlike in disinvestment in which Government equity comes down. (PTI)