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When bourses danced to the cacophony of politicians

Performance of the capital market during 1998 was a clear reflection of uncertainty and confusion in the political arena that dragged down the economy throughout the year.

Reflecting the downtrend, the Bombay Stock Exchane Sensex and the S&P CNX Index of the National Stock Exchange have recorded a slump of 695 points or 19 per cent and 218.30 points or 20 per cent to 2963.45 points and 861.10 points against the last year's close of 3658.98 points and 1079.40 points respectively.

BSE President J C Parekh said that performance of stock markets in the year was lacklusture. Barring pharma, infotech, fast moving consumer goods and multinational companies' scrips, the market has gone down substantially affecting investors in general and the Unit Trust of India, the country's largest mutual fund, in particular.

The benchmark index of the BSE took a roller-coaster ride, starting from 3694.62 on January 1, touched the high of 4280.96 (April 21) and low of 2764.16 (October 20) to end at 2963.45 points during the year.

The show at the country's largest and leading bourse, the NSE, was also not much different than that of the BSE, where the CNX Nifty opened at 963.45 points, touched the high of 1159.35 (April) low of 817.75 (November) and closed at 861.10 points.

However, surprisingly, the S&P CNX Nifty Junior posted a handsome gain of 271.70 points or 22.85 per cent to 1460.70 from previous year's close of 1189.00

Arup Mukherjee, chief executive officer at the India Index Services and Products Limited, a joint venture of Credit Rating and Information Services of India Limited and the NSE, has attributed the Nifty Junior's good show to the remarkable performance by the infotech sector which has the largest weight of 22.49 per cent in the index.

Stock markets in Japan and Hong Kong also reported heavy slump during the calender year 1998.

The Nikkei Index at Tokyo fell sharply by 1562.20 points to 13706 on December 24, from the last year's close of 15268.93 points. The Hang-Seng Index at Hong Kong, which also reported record volatility during the year, recovered miserably from the year's low of 6544.79 to 10292.20 points on December 24, recording a loss of 430.06 points from the last year's close of 10722.26 points.

The foreign institutional investors have suffered heavy losses worldwide due to the southeast currency crisis which was also one of the major reasons behind the major fall on the leading Asian bourses.

Peregrine Securities India was the fifth major FII to close down its operations in India due to tough market conditions, which arose after the economic crisis in southeast Asia. The four others which have closed down their operations were BZW, Natwest Markets, Deutsche Morgan Grenfell and ING Barings.

The FIIs, which have emerged as major market players on the stock markets in India during last couple of years, have witnessed a very discouraging trend and reported continuous outflow in their investment during the year.

The FIIs reported net outflow of Rs 5 billion during the year, analysts said.

BSE president Parekh underlined the need for creation of large size mutual funds which can act as a buffer to face FIIs' selling spree.

He blamed the Union government for discouraging the stock markets. He said that inability of the Bharatiya Janata Party-led coalition government at the Centre to take hard decisions like exit policy, selling of PSU shares, amended Companies Act, Securities Control Act and allowing features and options to be traded on the bourses also affected market sentiments badly on the bourses.

''In fact no major important decisions could be taken due to constraints faced by the government. This has been taken as major weaknesses and investors are not coming forward to invest in the market,'' Parekh said.

Markets made cautious start here in the wake of southeast Asian currency crisis and the general elections in the country.

None of the major political party could establish majority and the BJP with alliance parties came forward to form the government. The market welcomed the BJP-led coalition government wholeheartedly as the BSE Sensex witnessed upward march immediately after the formation of new government.

The FIIs who were cautious on the outcome of the elections also turned positive that was reflected in their investments on the BSE in February, March and April. The FIIs have reported highest net investment of Rs 5.03 billion of the year in April while they reported highest outfllow of Rs 5.06 billion in October.

The market capitalisation on the BSE registered an increase of Rs 1.53 trillion between January 1998 (Rs 4.69 trillion) and April 21, 1998 (Rs 6.22 trillion) due to change in sentiments.

However, the positive trend could not be sustained for long as the markets reacted sharply to India's nuclear tests as well as the economic sanctions which were imposed by the United States on India for conducting the tests.

As a result of the nuclear tests and the consequent sanctions, the market capitalisation slumped to Rs 5.01 trillion on June 10, wiping out almost four-fifth of the gain. The panic continued for a long period.

The revised credit policy for the first-half of 1998-99 announced by the Reserve Bank of India governor Bimal Jalan on April 29, did not enthuse the securities market. In fact, soon after the announcement of the policy, the market index fell led by the decline in bank scrips.

The maiden Union Budget of the BJP-led coalition government presented by Finance Minister Yashwant Sinha had also failed to enthuse the stock market.

In order to bring back confidence of common investors in the market, the Securities and Exchange Board of India or SEBI cracked down on the companies that have raised funds in the market in a fraudulent manner. It also launched an excercise to ascertain how the funds raised through public offerings in recent years have been deployed.

The market sentiments were also adversely affected following reports on UTI suffering major losses in the US-64 scheme. The US-64 scheme which has a corpus of Rs 220 billion, had shown a negative balance in reserves to the tune of Rs 10.98 billion in September.

The recent attack by the United States and Britain on Iraq also affected the market sentiments badly. However, the decision to halt the attacks by the US brought back normalcy in the last month of the year.

Looking at the depressed conditions in the country's stock markets, Prime Minister Atal Bihari Vajpayee announced buyback of shares as a part of the economic package to boost the market.

The markets welcomed the announcement. However, several companies who came forward to take advantage of the revival package are waiting for certain amendments in company laws.

The government also announced opening of the insurance sector for foreign companies. However, legislations regarding it and the Patents (Amendment) Bill could not be passed in the current Parliament session. The postponement of these important decisions also demoralised the marketmen and affected sentiments badly towards the end of 1998.

Total turnover on the BSE and NSE registered an increase of Rs 641.38 billion and Rs 260.67 billion to Rs 2.6 trillion and Rs 4.06 trillion from the last year's total turnover of Rs 1.95 trillion and Rs 3.8 trillion respectively.

The BSE's broad-based BSE-100 index declined by 272.55 points to 1314.05 points from the last year's close of 1586.60 points. The BSE-200 and Dollex indices closed lower by 50.65 and 31.33 points to 303.80 and 118.90 points from the previous year's close of 354.45 and 150.23 points respectively.

The NSE continued to be ahead of the BSE in terms of business volume for the third consecutive year.

The annual report of the SEBI for 1997-98 clearly brought out the dominant position that the NSE has come to occupy in Indian capital markets. Of the total turnover of Rs 9.08 trillion by the 22 stock exchanges in 1997-98, the trading turnover of the NSE was the highest at Rs 3.69 trillion and accounted for about 41 per cent of the total, almost double the share of the next largest stock exchange.

NSE managing director R H Patil said: ''Performance of the stock markets in India was not very satisfactory during this calender year and the future prospects of the market are also uncertain in view of unstable political situation in the country.

However, Patil was optimistic on the opening up of insurance sector to the foreign companies. He said if it happens, it will certainly give boost to the market sentiments in the coming year.

The continued southward trend on the stock markets, however,could not halt the restructuring work at both the BSE and NSE throughout the year.

The BSE has promoted a company called Central Depository Services Limited for dematerialised trading settlements. It will also act as a depository. The company will start its operations very soon.

The BSE is also in an advanced stage for launching of derivatives trading as soon as the Securites Contracts Regulation Act is amended. The BSE is willing to start futures trading in the 30 Sensex-related shares.

The BSE finally reconstituted the Sensex bringing in Infosys Tech, NIIT, Castrol and Novartis by pulling out Arvind Mills, Great Eastern Shipping, SAIL and IPCL.

The reconstituted Sensex became effective on the exchange from November 16.

The NSE has tried to be a one step ahead over the BSE and conducted mock trading in index-based futures and completed certification. The NSE had also established a joint venture with Standard&Poor's, the world's largest rating agency and CRISIL to provide index services.

The year 1998 turned out a restructuring year for the Over The Counter Exchange of India. The exchange is being repositioned as a supplementary exchange to the NSE in order to counter the threat of Inter-Connected Stock Exchanges of India.

As a part of major revival package, the OTCEI management has recommended that the exchange should have both quote and order-driven market-making systems in the listed category. Another recommendation was those scrips which are not listed on the NSE but are listed on all other exchanges should allowed to be traded on the OTCEI.

Meanwhile, the Planning Commission had also suggested compulsory listing of all new issues on the OTCEI before graduating to other bourses in order to increase liquidity on the exchange. The plan panel has called for increased foreign institutional investment above the prescribed limit on the other bourses.

The NSE deputed Joseph H Bosco as the managing director of the OTCEI in April which was considered as a first major bid to revive the OTCEI. Armed with scheme for revival, the OTCEI is doing the unconventional -- it is trying to snap most of its ties with the past.

The exchange has relaunched trading with a common trading platform for both the listed and permitted category securities from October this year. The OTCEI has decided to place a number of its scrips in the permitted category. These stocks are one of the largest traded scrips at the large exchanges as well. For mid-cap and low-cap IT stocks, a separate segment is also proposed, according to OTCEI sources.

The OTC Index opened at 112.22 points, losing 6.33 points at 111.22 on December 24 against the previous year's closing of 117.75 points.

The Inter-Connected Stock Exchange of India Limited, promoted by the regional stock exchanges in the country, has already got recognition from the SEBI. According to ICSE sources, live trading on this new exchange is likely to begin early 1999.

The SBI Capital Markets Limited in its latest analysis report stated that year 1998 was the year of software companies. The software boom is expected to continue in 1999.

Pharma sector valuations should also be buoyant and would be led by MNCs after the Patents Bill is passed. Commodities like cement, which are protected against imports, may also have a good year, if the proposed spending on infrastructure works out as planned. Various power projects are approaching financial closures and demand for steel should go up in the next few years.

In the automobile sector, the two-wheeler sector continues to be buoyant. Truck sales are, however, low. Margins in the refining sector will improve further.

Barring political uncertainty, and assuming stable external environment, 1999 may turn out to be a good year for the Indian stock markets, the report added.

UNI

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