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UTI chief calls for opening up of PF management

Unit Trust of India chairman P S Subramanyam has warned against regulators segregating the activities of financial companies, saying such a move is inappropriate in the light of the planned integration of markets.

He expressed these views in the speech that he was to deliver at the half-yearly ordinary general meeting of the Indian Merchants' Chamber in Bombay on Wednesday, but could not as he had to rush to Delhi for an engagement.

The UTI chief noted that the Bombay Stock Exchange Sensex had not gone below 2,800 despite a string of adverse events and persistent 'hammering' by speculators and large-scale selling by institutional investors. "This is an important indicator of the resilience of the market," he observed.

"The interesting aspect of the market trend has been that we need to look at segments rather than the market as a whole," he said. Infotech, pharmaceutical, and consumer-goods stocks have registered increases even in the bearish market. "Also, the small and mid-cap stocks have been recording increases over the last one year, indicating that the market has not really moved down as much as the recent decline in the leading indices may indicate."

According to Subramanyam, mergers & acquisitions and buyback need to be encouraged as they will help restructure and recapitalise the average Indian company for enhancing shareholder value. He, however, cautioned that M&A should not lead to hostile take-overs.

He said the current price levels are very attractive for promoters. "Promoters who are interested in increasing their stake will also find the prices attractive. Companies with large reserves can gainfully utilise the same to increase shareholder value through share buyback."

He felt that M&A and buyback activities could be brought about by easing "unnecessary" restrictions and removing tax disadvantages for doing so. Banks and financial institutions could also play an important role, given their knowledge of Indian companies and industries. "They are best placed to structure products that will help promoters and managements raise resources to finance such activities," he suggested.

"Increased M&A activity will help equity prices find the right level, which is much higher than the present level," he added.

Subramanyam said introducing market-making in 'B' Group shares would improve liquidity in the segment and bring retail investors to the capital market.

He stressed the importance of developing a euro-rupee market.

On infrastructure, the UTI chief said the Indian financial system should meet the challenge of providing large amounts of funds for this sector.

He said there is a need to develop long-term asset-holding institutions and suggested that management of provident and pension funds be opened up to provide a wider range of products and better services for investors.

"The right tax incentives are also crucial for attracting long-term investments. The liberalisation of PF management can precede the opening of the insurance sector," he said.

UNI

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