Taking A Bolt Decision

STOCKBROKERS at the Stock Exchange, Mumbai (BSE) and other exchanges can now set up shop in cities where there are no stock exchanges, linking up investors and traders even in far-flung corners of the country. Last week, after a six-hour-long meeting on October 29, the Securities and Exchange Board of India (SEBI) approved the much-sought after expansion of BOLT (BSE On-Line Trading) and several more measures to boost the sagging spirit of the stockmarkets.

Says SEBI Chairman D.R. Mehta: "This will help in improving overall trading efficiency by bringing about price formation, price discovery and improved prices for investors, especially for those thousands of scrips which are listed only on the BSE." Adds a beaming M.G. Damani, BSE president, who has pursued the project for over a year: "Of all the measures taken to improve the markets, this will prove to be the most significant one for the investors. We plan to expand to 80 centres by March 1997 and to 150 in the next fiscal year." 

To allay fears that the expansion of larger bourses would be achieved at the cost of the smaller ones, BSE would first have to enter into memoranda of understanding (MOU) with those centres where stock exchanges already exist. It will also have to introduce the system of guaranteeing trades or set up a clearing corporation as well as a mechanism to resolve investor grievances. BSE has already signed one with the Ahmedabad exchange, and five more are to be tied up by the end of this month. By the end of 1996, Damani hopes all BSE members will be able to trade nationwide.

The question is, will they? Though this is a move designed to heighten competition in the market, especially between the BSE and the National Stock Exchange (NSE), and reduce the cost of investment for those investors who had previously no access to the BSE, doubts persist on the ability of BSE members to offer actual competition. An enthusiastic Damani, however, is drawing up plans for taking BOLT terminals out of the country, mainly to the cash-rich NRI community in the UAE. He and R.H. Patil, NSE managing director, have left for Hong Kong and China to attend the Federation of International Bourses meeting where one of the two would be selected for its coveted membership. Says Damani: "NRIs residing in the UAE have invested huge amounts in Indian securities. Besides, they have also been trading on the exchange via telephones and faxes. The BOLT facility will enable them to get real-time price information and immediate trade confirmation."

 To further jump-start the stockmarkets, SEBI has reduced the individual subscription limit for primary issues from Rs 5,000 to Rs 2,000. Though the move is more of a restoration—SEBI had itself hiked the limit some time ago—this is one measure that will directly impact the primary market. Still, mutual funds, which would ideally have the small investor subscribe through their funds, are pleased with the flexibility of operations and performance-based fee structure. Funds can now go into other businesses like offshore funds, venture capital funds and insurance companies, except portfolio management services.

 Secondly, unlike the earlier recommended structure based on ‘basic management fees’ and ‘additional fee’, SEBI has maintained 1.25 per cent of NAV (net asset value) weekly average for net assets up to Rs 100 crore and one per cent for assets exceeding Rs 100 crore. Funds can now also borrow to meet dividend and interest payments, against only redemption requirements earlier. Though the last measure is prone to misuse, the package for mutual funds will be a shot in the arm for the ailing industry. Says Jagdish Capoor, chairman, UTI: "SEBI has made the operating environment more flexible for the players."

To encourage large infrastructure projects, SEBI has also allowed companies to bring in promoters’ contributions exceeding Rs 100 crore in a phased manner and also get their debt instruments listed even if their scrips aren’t listed. This is because infrastructure companies will be, by nature, debt-intensive. As an FII fund manager put it: "They have given us all that we could ask for." Says Vance Chin, CEO, China Trust Commercial Bank: "SEBI has reinforced its role as the developer of the capital market rather than just being a regulator. The main issue in today’s sluggish equity markets is the lack of small investors’ confidence."

 Industries across the board have welcomed the market watchdog’s latest steps, though they are not sure that these are more than just fire-fighting measures. "Going by its past performance, SEBI has always been reactive rather than proactive. Whenever it has found the markets caving in, the regulator has stepped in with some proclamations," says a merchant banker. Adds a broker: "It’s clear that SEBI is actually letting the market forces determine the pace. All it has done is to remove some of the restrictions that were inhibiting the grain as well as the chaff."  For its part, SEBI is tightening administrative loopholes—it has decided to scrutinise every offer document. Says Mehta: "Our vetting of offer documents was giving a wrong impression in the market that we have approved the project. Instead, officials will now focus on inspection to ensure that merchant bankers are exercising due diligence while vetting offer documents." It has also withdrawn the ban on corporate advertisements by issuers, insisting only on the risk factors.

Before the market could react positively to the announcements, the Enforcement Directorate swooped on ITC offices countrywide, making the Calcutta brokers go on a bear run that could not be thwarted by any centre. But the good news is that FII investments are moving up. Since the announcement of the credit policy, the market has seen $80 million of fresh FII funds flow, which roughly equals the amount that came in in August. At this rate, calendar ’96 may see a total of $3.5 billion in FII investment, in itself a major sentiment-reviving factor for the stockmarket.