The primary market continues to be in deep slumber. According to the latest available figures, there were hardly 5-10 companies approaching the Securities and Exchange Board of India for going public in February, March and April this year. In fact, in the last one year, public issue proposals have gone down drastically from 369 in April to 7 in December. The number of rights issues have also shown a staggering fall to Rs 2,724 crore in 1996 from Rs 12,630 crore barely four years back. True, this phenomenon is nothing new: the Rip van Winkle existence of the primary market has been reported with monotonous regularity over the last few years.

What is disconcerting, however, is that the slump has started going unnoticed, obsessed as most of those who matter are by the roller-coaster ride of the sensex. When the sensex zooms, suddenly all's well with the economy; when it crashes, all hell suddenly breaks loose. This is how everyone reacts. This lunacy with sensex has sadly pushed the primary market in the background with the result that small investors — the backbone of the stock markets — are deserting the ring. This is evident from the relevant figures given in the latest RBI Report on Currency and Banking. The share of shares and debentures in total household investment has dropped to 4.9 per cent in 1995-96 after having peaked to 23.3 per cent in 1991-92. Obviously, the sensex crisis has scared away household investment from the stock market.Much has been made of the role of foreign institutional investors; the rising graph of FII investment in stock markets led us to believe at one time that FIIs -- and not the household investors -- held the key to the fate of the market. But consider the figures: the net investment of FIIs during the first six months of 1996-97 alone was Rs 4,974 crore making them the single largest group of institutional investors in the market. Their cumulative net investment as at the end of September, 1996, stood at Rs 22,064 crore. But even at the current depressed level of market capitalisation, this represents just about 10 per cent of the total of the Bombay Stock Exchange and its rival, the National Stock Exchange.

It is thus obvious that the market desperately needs infusion of funds in large amounts and only a big spurt in household investment can mitigate the problems of the primary market.

But the market watchdog seems to be losing no sleep over this. Witness the stringent restrictions on initial public offers and the series of changes that SEBI has introduced over the last three years. In its anxiety to weed out fly-by-night operators, an over-enthusiastic regulator has finally managed to force small investors to opt out of the stock market and depend more and more on debt issues.

As a result, the amount raised through debt has seen a phenomenal jump from a mere Rs 409 crore in 1992-93 to Rs 6,927 crore in 1996-97. The emergence of a flourishing debt market has often been seen as a panacea for all ills of the corporate sector.

This may be true to a certain extent but one shouldn't forget one basic thing: financial institutions and banks are often wary of lending to companies with a high debt-equity ratio. Which in effect means that companies with low equity are not able to avail of debt finance. The conclusion is simple: unless primary market conditions improve, the corporates' appetite for funds will never be whetted. It is high time that measures are taken to improve primary market conditions: small investors have had enough of the stick; the carrots should follow now.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.