Simple explanation: the BSE has decided to simplify its life by disallowing listing of companies with less than Rs 5 crore of post-issue capital. But, shouldn't the gains have then accrued to the Over the Counter Exchange of India (OTCEI)? After all, the OTCEI has been set up to cater specifically to small-capital base companies or 'smallcaps'.
The statistics hint at a brewing battle between two bourses that may yet transform the Indian capital markets. If BSE has decided to challenge the National Stock Exchange's (NSE) growing hegemony (see Bolt from the Blue, Outlook , January 17) as far as the 'highcaps' are concerned, the powerful ASE appears to have decided that its key to long-term survival is to take on OTCEI on smallcap turf.
For, the writing is on the wall,and has been ever since the NSE and OTCEI were flagged off: in the long run, the regional stock exchanges are dead. So it has happened across the world, and so it shall be in India. But what if a regional stock exchange offered the same facilities as a national stock exchange, as the BSE is planning to do by extending its computerised trading system across the country? Ahmedabad's survival strategy too may turn out to be on the same lines. Its target: the OTCEI.
Modelled on the NASDAQ (National Association of Securities Dealers' Automated Quotation System) of the US, the OTCEI introduced concepts like screen-based online trading, market-making, and a nationwide network. It is both investor and investment-friendly. No loose slips of paper here, and no concomitant uncertainties. Unlike, say, today's ASE. Add to that the SEBI ruling on disclosure and investor protection, issued last year, based on the Malegam Committee recommendations. These new guidelines make it mandatory for a company with an issued capital of Rs 3-5 crore to list on the OTCEI and on any other stock exchange, only if it has an automated screen-based trading system and a market-making mechanism. Among all Indian bourses, only the OTCEI has a market-making facility (giving a firm a two-way quotation every day, for 18 months), and only the BSE and the Delhi Stock Exchange have introduced screen-based trading.
But the SEBI ruling comes with a key rider. It is applicable only to companies with less than two years of commercial operations. So, companies in the range of Rs 3-5 crore, with more than two years of commercial operations, can approach any regional exchange, barring the BSE, which of course isn't interested. Hoards of these smallcaps are now converging on Ahmedabad.
Compare the figures: the OTCEI managed eight issues for listing in its first year, 1992-93, followed by 21 in 1993-94, and 29 in 1994-95. Ahmedabad clocked 762 in 1994-95. In 1995-96, the OTCEI is doing marginally better, having bagged 29 new issues already in April-December 1995, but it's still far from the numbers it expected.
The surge in Ahmedabad, says M.L. Son-eji, executive director, ASE, "is because of the companies from within Gujarat acti-vely listing on the bourse, besides the BSE-ceiling factor". Says J.G. Shah, vice-president, BSE: "The Jaipur-Goa belt (including Pune) subscribes to about 50 per cent of any public issue in the country. In Gujarat, in particular, finance is relatively easily available, industrial growth is more than that in Maharashtra, and the government is investor-friendly. More than having surplus money, the habit of investing in shares, unlike in places such as Punjab and Delhi where gold and land hold more interest, is the reason for this trend. Even a small hawker in Ahmedabad, sellingRs 500 worth of wares a day, has money in shares." And according to Prithvi Haldea, managing director, PRIME database: "Small towns suffer from a lack of companies available for listing and from investors." Ahmedabad is the huge exception to this rule and it's cashing in.
The other significant factor is the active grey market in this region. Smallcap stocks, especially finance companies, indulge in rampant price rigging in the unofficial market, before the listing, to induce investors to buy their scrip. The OTCEI, of course, leaves little scope for price manipulation on listing.
The ASE knows that the grey attraction cannot last for long. Sooner or later, all exchanges will be computerised. SaysHaldea: "This phase is temporary (if there aren't any political or policy decisions to affect otherwise). In the long run, the stock market will boil down to two exchanges like in the US, where you have only the New York Stock Exchange and the NASDAQ. However, in the short run, the regional stock exchanges will benefit." The ASE realises this all too well. The exchange, reveals Soneji, intends to go online in June 1996, supplemented by a market-making facility. That's going head to head with the OTCEI. Will the next step be to extend the ASE's online facilities, a la the BSE's proposal?
The OTCEI's prospects, according to Managing Director Ajeet Prasad, are bright. "It has established itself as an efficient medium for small and medium sized companies to raise capital," he says. True, but he should be watching his back.
