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Sinha, Kelkar head for Bombay, moves afoot to stem the financial rot

The Union government has decided to take stock of the continuing crisis in the Indian stock markets. The exercise is marked by personal visits to Bombay by Finance Minister Yashwant Sinha and Finance Secretary Vijay Kelkar.

Sinha will hold talks with the Securities and Exchanges Board of India on Friday. The issue of non-disclosure of the net asset value of US-64 is likely to figure in the talks.

Kelkar has already completed a one-day tour on Wednesday.

Sinha will also attend the business convention of the All India Business Council. He will leave for New Delhi on Saturday.

Yesterday, Kelkar met the Unit Trust of India chairman P S Subramanyam and discussed options before the government and the country's largest mutual fund mobiliser to rejuvenate the US-64 scheme.

Kelkar's visit assumes significance in wake of over Rs 10 billion negative balance in the reserves of US-64 and massive off-loading of shares, notably those belonging to banks and financial institutions by foreign institutional investors. Both the factors have led to an unabated tumble in the stock markets of the country.

The Sensex of the Bombay Stock Exchange plummeted to 2764.16 on Tuesday, coming close to the three year low of 2713 recorded on December 4, 1996.

Sources at the UTI said that Kelkar discussed issues related to dividend pay-out to unit-holders in 1999, the question of declaring the US-64 dividend tax free, thus bringing it on par with that of equity shares, providing a guarantee to the Rs 220 billion corpus of the US-64 and greater participation by banks and the FIs in the secondary market.

The UTI had declared a dividend of 20 per cent for the US-64 scheme in June, 1998. Two-thirds of the dividend pay-out, amounting to Rs 32 billion came from the income earned from profit-booking on shares, while the balance one-third was realised from dividends and interest income.

The UTI has attributed the dent in its reserves to depreciation in the values of equities after the nuclear tests by India and economic sanctions that followed it.

Doubts have arisen in the minds of the common investors about the ability of the mutual fund major to meet its dividend commitment in 1999. According to sources, the government is considering to guarantee the dividend pay-out for next year.

Already, Sinha has stated that the Central government is firmly behind the UTI and would not allow it to fail and has given a stern warning to FIIs against spreading any ''destablisation''.

The SEBI contends that declaration of NAV of US-64 is vital, while the UTI contends that given the scheme's investments in assets like real estate, it is difficult to calculate it.

The US-64 episode has led market circles to believe that the NAV of the scheme is below par. The UTI recently hiked its repurchase and sales price to Rs 14.25 and Rs 14.55 to quell any redemption pressure from investors, who might feel that UTI may not be able to maintain its commitments in future.

Another sop being pondered is making the dividend income on US-64 Tax-free to make it attractive to investors.

UNI