The Federation of Indian Chambers of Commerce & Industry has said that the financial institutions and banks should play an active role to arrest the current stalemate and induct dynamism into the capital market.
Expressing concern over the long bear phase "that seems to be snowballing into a crisis", Ficci has said that the policy of the institutions and banks should not be a switch-on and switch-off. Their presence should be a sustained one particularly at this time, when the foreign institutional investors are shying away from the Indian market.
The industry chamber has said that with the FIIs coming into play in the capital markets, it appears that institutions and banks have shrunk their operations. As per the data available, many of them have now become net sellers in the market. Till date, it did not have an adverse impact as the positions taken by FIIs were sustained and seemingly long-term. Now, with the collapse of the Asian currencies and the pressure being built around the declining yen, it appears that the FIIs may take a wait and watch approach to the Asian markets.
According to FII perception, says Ficci, a degree of instability has crept into Asian currency markets and they have become net sellers. It is significant to note that from India alone, the net sales of FIIs during June 5-12 works out to Rs 615.4 crore. It is imperative to send a strong signal about the short and medium term stability of the rupee so that FIIs could plan their investment accordingly.
Ficci is in favour of committing at least 5 per cent of the incremental deposits with the banks for investment in the capital market. The incremental aggregate deposits with the scheduled commercial banks from April 1997 to April 1998 has worked out to over Rs 1,00,000 crore.
Of this, if the banks are channelling 5 per cent into the capital market, as has already been permitted by the Reserve Bank, the amount would work out to Rs 5,000 crore.
This would be a significant support for the capital market at this critical juncture, says Ficci.
