Growing fears of a global economic slowdown, combined with reports of market irregularities affected investor confidence last year, the Survey says. The erosion of confidence has led to a drastic fall in market valuations in terms of price-earnings (P/E) ratios from around 27 in March 2000 to around 15 in December 2001.
In recent months, the P/E of the S&P CNX Nifty has been around 15, which suggests that the markets expect relatively weak earnings growth in the corporate sector.
Moreover, the P/E ratio of the second-rung stocks in the country has fallen much more. The P/E ratio of the Nifty Junior has dipped from the region of 45 in December 2001 to present level of 6. This is partly a reflection of the sharp change in the valuation of new economy stocks, which have a prominent position in the index.
The fact that the P/E ratio of S&P CNX Nifty is 2.5 times times the P/E of Nifty Junior suggests that there is a sharp increase in the cost of capital as one moves from the heavyweight stocks to second-tier liquid stocks, the Survey says.
UTI lost market share
The Economic Survey for 2001-2002 has pointed out "UTI has suffered significant loss in market share (in the mutual fund industry) from around 85 per cent in 1996 to 50 per cent in 2001." Investors (have) lost confidence in UTI due to the erosion in the value of their investments in US-64, but this did not deter investors from flocking to the mutual fund sector.
Between April and December 2001, MFs mobilised Rs 1,03,666 crore compared to Rs 59,430 crore in the same period of the previous year. Private sector funds accounted for more than 89 per cent of this inflow, an indication of their growing clout in this segment.
The US-64 debacle resulted in the scheme becoming net asset value-driven, while pushing UTI into becoming more Sebi-compliant.
For the Trust, redemptions exceeded gross resource mobilisation by more than two times during this period. The survey has noted that during April-December 2001, MFs were net sellers of equity and net buyers of debt.
