COMMENTARY
SPECIALS
CHAT
ARCHIVES

The Rediff Business Interview/ N Muralidharan

'Sinha need not come out with any extraordinary proposals but he should not go back'

The Madras-based Associated Chamber of Capital Markets is optimistic about the capital market scene. Not so long ago, it had issued a very worried statement to the media. But the announcement of new highway projects and the recent stock-buying spree of the foreign financial institutions has excited the chamber's most vocal member and vice-chairman N Muralidharan. In this interview to Shobha Warrier, he shares his concerns and observations.

Are you satisfied with the capital market now?

The many issues that were worrying us and about which we had complained had been taken care of, to some extent by the government now. So, I would say the market is functioning quite satisfactorily.

So, you think the market has become healthy.

Now it is definitely a healthy market. In the last 15 days, the Sensex has kept up its upward movement. But its sudden surges are not healthy at all. A correction has to come.

Will the Indian investors gain in confidence now that foreign institutions are investing in India? According to a recent all-India study by the Society for Capital Markets, investors have lost faith in corporate management and various agencies, which are supposed to protect the investors. It says 79.4 per cent have little confidence or no confidence in company management, 55.2 per cent in the SEBI, 63.8 per cent in auditors and 78.3 per cent in stock brokers.

I don't believe their finding. Yes, some of the unscrupulous corporates have siphoned off a lot of money. They misled people about various projects, which never came at all. They swindled a lot of money, which actually belonged to the common man. About the agencies, I don't agree. Now the agencies give better service to the customers because of stiff competition. Just four years back, there were 4,000 brokers in the market but now there are hardly 1,500 brokers. The inefficient ones were forced out.

Is it not true that the investors have lost confidence in the market? It was reported that the primary market saw only 111 issues in 1998 as against 884 and 1720 in the previous two years.

Investors always come in a flock. They don't rationally invest in the stock market. When there is euphoria, they come in large numbers to invest. In 1994, there was euphoria because of Harshad Mehta. They lost money even in the second rank shares. And if they had held on to the blue chip companies, they would have recovered a lot of money. But people do not behave rationally in a market.

Is it because of under-consumption that the market is sluggish?

Yes, under-consumption is one of the reasons. Because of the free allowance of import, the Indian industry has been badly affected. Even companies like Tisco suffered because they were unable to compete with the international steel prices. From a high of Rs 900, the price of Tata Steel went down to Rs 90. Cement, steel, power and automobiles -- they contribute to the growth of any economy.

If you look at the scene in the last 15 days, you will see that Telco has led the way. From a low of Rs 90, it has gone up to Rs 230! Telco and ACC lead the market. Yes, I admit a correction is expected from the way the market is behaving now. Then we expect the market to stabilise.

To what do you attribute the sudden change in the stock market scene?

It is only because the government has started doing something. They have announced the road projects -- a major decision. The moment the government announced that they were going to invest Rs 280 billion in the road projects, the cement shares went up. ACC jumped from Rs 800 to Rs 1,270.

The government has to invest in the infrastructure and only then you start seeing changes. In a bid to boost the commercial vehicle industry, the government has said that irrespective of the date of investment, they will be eligible for 60 per cent depreciation. That has boosted the automobile industry. Once the shares of Ashok Leyland and Telco move up, all the ancillary industries will also move up.

Foreign institutions have also started investing heavily in the last one week and we expect the momentum to continue throughout 1999. The entry of the FIIs shows that they are satisfied with the investment potential in the country. Now they see China and India as major investment centres.

So much has been said of the Unit Trust of India's role in the capital market.

We feel the government is redeeming the book value of US-64 at Rs 14 when it is not even worth Rs 10. If they go on like this, one fine day they will be left with nothing.

Somebody has to bear the responsibility, either the government or the UTI. They have set a bad precedent by devising a scheme which gives an exit route for the investor at an exaggerated price, much above its value.

What are your suggestions for a healthy market?

For the market to improve, the government has to be fast about the PSU disinvestment.

So far, the government has only been talking, and nothing concrete has been done. The government has not been firm on its policies. Last year in the Budget, they announced that they were going to impose a duty of Re 1 on urea. Then they reduced it to fifty paise. Finally they decided to abandon it altogether.

Similarly they wanted to increase the import duty of some of the items by 8 per cent but when objections were raised by a group, it was reduced to 4 per cent. We want the government to think before they act rather than acting first and then thinking.

Can't they look at the pros and cons first and then take a firm decision? The repeal of the Urban Land Ceiling Act is expected to spark a boom in the capital market. I don't think any special considerations have to be given in the Budget because P Chidambaram has done whatever is necessary.

In 1999, I expect the overall economy to be good and also the capital market. See, now people have slowly started investing in the market. And when the government invests more in the infrastructure projects, the market will start looking up, even though I do not know from where they will get the money.

After Chidambaram's Budget, the stock market zoomed to a record high of 4600 but it fell miserably. Whatever Chidambaram had envisaged were non-starters. Do you have faith in the present government?

Yes, the United Front government was not firm on its policies. The southeast Asian crisis also contributed a lot to the sluggishness in the market. It appears the present government is really serious about reviving the market, which is a good sign.

But we feel one area they have to look into is the excise duty on automobiles, which is very high at 40 per cent. Another thing is, if they want the real estate scene to brighten up, they should reduce the stamp duty. It is a whopping 13 per cent now!

They can revive the automobile industry by reducing the excise duty and construction industry by reducing the stamp duty, and once they do this, the other related industries will start looking up. The move by Yashwant Sinha to discuss issues with everyone before the Budget is a very good one. His decision to be transparent in Budget-making is extremely good.

What we feel is, Sinha need not come out with any extraordinary proposals but he should not go back. If they are really serious about the Rs 280 billion highway project, the market will brighten up.

Interviews

Business news