MUMBAI, February 19: Foreign investors feel the domestic market holds promise, especially after the sprucing up of its infrastructure. Hitches, however, still exist to their full participation, primarily owing to a lack of liquidity. This was brought to light by their representatives at a seminar on measures for restoring investors' confidence in the capital market, organised by the All India Association of Industries on Thursday.SBC Warburg chairman Euan Macdonald said that it was extraordinary international-rating companies should have downgraded India, though it was stronger than many south-east Asian countries. While the stock market here is fundamentally strong, the main problem is it is too small, he said. It is not as though domestic companies are not well capitalised, the problem is their stocks are illiquid, he added. Macdonald maintained that it was necessary for the government and the regulator to stimulate the market and shake out the lack of liquidity. He felt that there was no point in askingforeign investors to come and invest, when relatively small amounts (for them) like $10-15 million dollars move the market. They also later face problems in exiting from the market, again because of the lack of liquidity, MacDonald said.
Morgan Stanley India Securities president Vikram Gandhi also felt there needed to be greater liquidity. He called for more institutional participation in markets. Insurance companies and provident funds should be allowed to invest to improve liquidity, he said. "Increased institutional participation is required to push the markets out of its current bear phase," he added.
Share buy-back and the introduction of derivatives would also contribute to greater liquidity, participants felt. Abroad, the two concepts have provided an increased thrust to liquidity in the markets, they said. On issues facing foreign investors, MacDonald said that the regulations governing them were unduly restrictive. "Most of us are not interested in investment management, we want to be stockbrokers," he said. Rules for foreign institutional investors (FII) are designed to encourage funds to invest in the country. Allowing foreign brokers to deal on behalf of their clients will be welcome, MacDonald said.
Regarding technical glitches facing foreign investors, it was felt Indian firms were the only ones world-wide to have not adopted the concept of consolidated accounts. Companies within a group willy-nilly end up helping each other. If accounts are not consolidated, how is an investor supposed to know what is going on in his company, MacDonald asked.
He also felt that since domestic financial institutions held a large part of the shares in companies, they should think of using their holdings more effectively.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
