MUMBAI, February 19: Union finance secretary Montek Singh Ahluwalia today called upon market participants not to be too despondent about the state of affairs in the capital market. "It is true that the industrial growth has slowed down, but it is probably a cyclic thing and there are chances that it will improve in another phase," he said."We have a new government coming. As we move towards the elections, we tend to have people waiting and watching, spending the intermittent time in contemplation about past decisions and future plans," he said. But he emphasised that the slowdown may have been compounded by the developments in the South East Asian markets. "We should not look at a lack of dynamism in one market without looking elsewhere," he said, adding that the combined effect of the stock market and the currency market in India is certainly better than in other Asian countries. He was addressing a seminar on `measures for restoring investors confidence in the capital market,' orgainsed by the All IndiaAssociation of Industries, here on Thursday.
While the Indian capital markets are fast moving towards international standards, the investors will end up being satisfied only if they invest wisely taking into account their own risk profiles, he indicated. "A sensible equity investor will go in for a balanced portfolio or go in for a mutual fund," he said. In fact, he recommended that except perhaps for high networth individuals who are capable of appointing their own investment advisors, a majority of the people should be putting their monies into the capital market indirectly through mutual funds.
Ahluwalia, however, chided those who called for reduction of taxes as a measure to improve the markets. A structure of direct taxes which is highly conducive to savings moving to financial assets like equity has already been put in place and has been quite successful already, he said. There are already several incentives related to savings, wealth tax, long-term capital gains tax and FIIs, he said. He called forthe inclusion of monies raised by GDRs in the figure for funds raised from the market.
The finance secretary admitted that the channeling of insurance and provident fund monies into the capital market is an important issue.
However, he lamented that the present insurance companies are not using the flexibility already available to them in the rules to invest more freely in the markets. "There is a conservative approach that leads them to invest in government bonds. This will continue to be valid as long as the returns on government bonds continue to be high," he said. The way out would be to reduce the fiscal deficit, he said, adding that it will be better for the government to move to the shorter end of the market while leaving the longer end for corporates. Provident funds also have a conservative approach. The decision of investing these funds lies with the provident fund commissioners and not with the government, he informed.
The resistance of these commissioners to let the monies flow to thecapital market has to be overcome he said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
