Business Standard: What are the immediate measures required for the revival of the primary markets?
I C Jain: The government should immediately allow buy back of shares by companies and promoters. This will boost liquidity in the system and provide a suitable exit for many retail investors. Currently, banks have been given the option of investing 5 per cent of their incremental deposits in capital markets. I feel that it should be made mandatory rather than optional. Public sector undertakings(PSUs) should be asked to enter the primary markets for raising money rather than always following the GDR route. If there are good issues in the market, there will definitely be takers for the same. In the case of advances against loans, the limit should be raised to at least Rs 1 crore as against the present limit of Rs 5 lakh.
The regulatory authority should force promoters to have an insurance scheme whereby the interests of small investors, say those who have invested upto 200 shares, are protected. This will instill confidence among retail investors and surely lure them back to the market.
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BS:The recently announced bank issues have received a good response from the investing community. Does this in any way signal a revival of primary market?
ICJ: It only goes to prove that even in depressed market conditions, there will always be takers for quality issues. Investors have put their money in these issues because they are confident of an appreciation in their investments in the near future.
However this does not signal the revival of the primary markets as not all issues will get the same kind of response. Banks have a diversified portfolio and by investing in bank stocks, the retail investor can have access to the same.
BS: What is your opinion on the Sebi guideline of minimum number of shareholders per lakh rupees of shares?
ICJ: It is only hindering the progress of revival of primary market. If a promoter is confident about the project he is undertaking, he should be allowed to put in his own money in the event case of the issue not being subscribed fully.
The Sebi should give the promoters a definite timeframe to adhere to the stipulated norms, say a period of two years, after his project goes on steam. But in case of infrastructure projects and other capital expensive projects, these norms should be dispensed with.
BS:What are your views on strategic alliances within the merchant banking community, like the recent one witnessed between J M Financial and Morgan Stanley?
ICJ: Consolidations will be a common feature in these times of stress. Such developments augur well for the future of the merchant banking community. Consolidations will ensure that quality players remain in the fray unlike the past where there were too many intermediaries for the regulatory body to supervise. Mergers will lead to healthy competition and better professional standards being maintained. This will ultimately result in better quality issues coming to the market.
BS:What measures do you feel should be forthcoming from the government for the betterment of the primary market?
ICJ: The government should show more concern about the erosion in market capitalisation and treat this as a national loss.
In the US, when stockmarkets crashed, the president actually came on television to boost the morale of the investors by justifying the fundamentals of the nation.
Unfortunately, this concern is lacking in our country. Before taking any major decisions relating to capital markets, it should have a proactive consultation with the practitioners and regulatory authorities of the market. Taking knee jerk decisions will certainly not work in the long run.