To ensure stable capital market growth, regulators must be held accountable

Sandeep K Singh
Posted online: Friday, February 29, 2008 at 0011 hrs

New Delhi, February 28: Calling for more financial reforms or steps to carry the growth momentum, the Economic Survey suggests non-inflationary credit expansion. It demands that productive sectors should get adequate credit at reasonable cost to facilitate the economy’s growth momentum. It also talks of developing interest rate futures market and corporate debt market.
For capital markets the Survey suggests policymakers should take responsibility to maintain stable market condition and regulators remain proactive and vigilant to avoid irregularities. It demands greater accountability on part of regulators and policymakers to ensure stable growth of capital markets.
Money mobilisation through primary market and mutual funds increased significantly. Primary markets mobilisation jumped by 31.5 per cent and mutual fund industry grew by 70 per cent.
The Survey credits the 47.1 and 54.8 per cent growth in Nifty and Sensex respectively in 2007 to higher GDP growth rate, corporate profits and high capital inflows. It, however, points out that the return in the Indian market has been more volatile as compared to indices abroad and Indian stocks are high on valuation among select emerging market economies like South Korea, Thailand, Malaysia and Taiwan.
According to SBI chief investment officer (SBI fundsmanagement) Sanjay Sinha, “This year will see moderation in capital market returns as corporate profits will moderate on the higher base, FII inflows are expected to be low after the record high in 2007 and GDP growth rate has also moderated.”
The Survey suggests that despite possible subdued global growth, strong fundamentals of the economy along with higher growth would help keep interests of domestic and foreign investors intact.
Investor awareness and growing importance of insurance and pension funds will provide stability to the market and broaden the government securities market’s horizon.
Not enough, say market participants. “Pension reform needs a huge kick-start but the political will is lacking,” said Lotus India AMC CEO Ajay Bagga. “It will take three to four years for it to make an incremental impact.”
Eventful Year
•Fast track issues permitted, Sebi allowed discount on issue price to retail investors
•Sebi approved introduction of seven new products, is working to implement a unified trading platform for corporate bonds
• Overseas investment limit for mutual fund industry and individual fund houses raised to $5 billion and $300 million respectively
•Introduction of no-load funds on direct mutual fund investments
•FMC initiated the process of disseminating futures and spot prices at various mandis, post offices, and rural branches of commercial banks to help cover risk