Another bad year for investors

MUMBAI, December 28: As the capital market is getting ready to welcome the new year, investors all over the country have nothing to cheer ab...

MUMBAI, December 28: As the capital market is getting ready to welcome the new year, investors all over the country have nothing to cheer about. They are counting their losses once again as in the previous two years. While both companies and investors shunned the primary new issue market, retail investors kept away from the secondary stock market. As much as Rs one lakh crore of investors’ wealth was eroded as the market capitalisation (indicating the total worth of shares listed on the exchange) fell from Rs 5.98 lakh crore to around Rs 4.96 lakh crore during the year.

Even though fundamental factors like the economic growth rates, low inflation rate, monsoon and farm output turned out to be good, political instability which led to the formation of two governments at the centre created problems for the market. The `dream budget’ of Finance Minister P Chidambaram promised good things (like cut in corporate tax, abolition of dividend tax and reduction in income tax) for the corporate sector and investors, but the capital market could not capitalise on these factors.The budget proposals and better liquidity position benefited only multinational companies. Public sector companies and software companies benefited from the changes and put up a good show on the bourses. The fancied Sensex rose by nearly 200 points to 3651.91 after the presentation of the Union budget in February. Thereafter the market showed steady progress and crossed the 4000-mark on March 5.

When the Deve Gowda government fell in the last week of March, the Sensex crashed by nearly 700 points to 3319 in 20 trading sessions on the Bombay Stock Exchange. “When the government fell there was a big fear in the market about the smooth passage of the `dream budget’. There were also concerns about the next government. But things improved later and the market started picking up after the Gujral government was sworn in and Chidambaram continued as the Finance Minister,” said a BSE director.

Story continues below this ad

There was no looking backward for some time thereafter. Sensex touched the 1997 high of 4605.41 on August 6 following heavy purchases by local operators and foreign institutional investors. However, the business was restricted to frontline shares – mainly in the `A’ group. The going was good till the beginning of October. However, when other Asian stock markets like Korea, Malaysia, Thailand and Indonesia reeled under heavy losses, the impact was visible on the Indian markets also. With FIIs pulling out of the Asian region, the inflow of funds through this route fell steeply. As a result, for the first time after the Indian market was opened up for foreign investment, there was a net outflow of FII funds in November.

With the Gujral government falling in November end, the cup of woes for the markets was full. The index touched the post-budget low of 3247.63 on December 11. At this level, the Sensex has lost by nearly 1350 points in the last five months and the market capitalisation declined by Rs one lakh crore to Rs 4.96 lakh crore. FIIs – which had invested over $ nine billion in Indian markets – are now keeping low due to political uncertainty and year-end redemption commitments. However, only UTI and LIC are active among domestic institutions to boost the market.

At the December 26, level of 3633.38, Sensex has gained around 548.18 points as compared to the December 24, 1996 closing level of 3085.20. However, it is still lower by over 972 points from the August 6 level. Nearly 4,000 scrips (out of 6,700 scrips listed on the BSE) are quoting below the par value of Rs 10. “Around 95 per cent of the volume is coming from top 100 scrips. There is hardly any business in other scrips, indicating poor investor interest,” said a broker.

Will 1998 be different for investors and capital market? As several experts like BSE president M G Damani pointed out, the general business confidence will have to revive for the return of small investors. Clearly, the next government at the centre will have to build some confidence-building measures.