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> Policies> economic survey 2000-01
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Economic Survey 2000-2001
[Review of Developments]
Money supply
Capital and money markets
1.73 The capital market witnessed subdued activity in the current financial year. During April-December 2000 resource mobilisation through public and rights issues was about 26 per cent lower than the amount raised in the corresponding period of the previous year. Though the amount raised through debt registered greater decline by about 32 per cent the amount raised through equity issues also declined by around 22 per cent during this period. This mirrored the relatively weaker investor sentiment in the secondary market, which was also reflected in the net FII investment. Net FII investment (as per estimates by the SEBI) in April-December 2000 constituted hardly one-third of that in the corresponding period of 1999.
1.74 Contrary to the buoyant conditions witnessed in the stock market in 1999-2000, there has been significant decline in share prices in the current financial year. The Bombay Stock Exchange (BSE) Sensitive Index declined by 13.5 per cent from 5001 at the close of March 2000 to 4327 at the close of January 2001. The National Stock Exchange (NSE) Index (S&P CNX Nifty) also exhibited similar trends in share prices. It declined by 10.2 per cent from 1528 to 1372 during the same period. This erosion in share prices reflected the influence of share price movements abroad, specially at the tech-heavy NASDAQ. Nevertheless, the decline at BSE and NSE was much less than that at NASDAQ where the index declined by 39.4 per cent from 4573 at the close of March 2000 to 2773 at it close of January 2001.
1.75 The Securities and Exchange Board of India (SEBI) has carried further the process of capital market reforms with the objective of moving towards a market, which is modern in terms of infrastructure as well as international best practices, investor friendly, efficient, safe and globally competitive. The major reforms undertaken in the capital market in course of the year include the following:
Tightening of entry norms for IPOs through modifications of SEBI (Disclosure and Investor Protection) Guidelines,
Relaxation of IPO norms for companies in all sectors by reducing the minimum level of public offering from 25 per cent to 10 per cent of post-equity issue,
Compulsory book building in respect of IPOs by companies without proper track record, including the stipulation that 60 per cent of the offer be allotted to qualified institutional buyers,
Permission for 100 per cent one-stage book building with bidding centres at all cities with stock exchanges and liberalisation of investment norms for mutual funds by allowing open-ended schemes to invest up to 10 per cent of their net asset value (NAV) in equity shares or in equity-related instruments of unlisted companies,
Relaxation of permissible level of funds of commercial banks for investment in capital market by replacing the earlier ceiling of 5 per cent of previous year’s incremental deposits by 5 per cent of outstanding credit and
Setting up of Investor Grievance Redressal Cell in Department of Economic Affairs to coordinate the efforts of regulatory agencies, viz., RBI, SEBI and the Department of Company Affairs.
Introduction of derivatives trading based on stock index futures.
1.76 An important measure designed to further enhance the efficiency of the money market taken in June this year was related to the transition to a full-fledged Liquidity Adjustment Facility (LAF) involving injection and absorption of liquidity via variable rate reverse repo auctions and variable rate repo auctions respectively. Regulatory powers have been given to RBI under amendment to the Securities Contracts (Regulation) Act, 1956 to regulate dealings in Government and money market securities. The measures for further deepening and widening the Government securities market included permission to entities, who have been allotted securities in primary auctions, to sell them on the allotment date itself, and permission to all entities having SGL and current account with RBI Mumbai office to undertake repos in Treasury Bills and Central/State Government dated securities.
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