The central bank has said that the recommendations of the informal group under chief economic advisor Shankar N Acharya should be implemented expeditiously to ensure revival of the primary market.

According to the central bank's annual report, during 1997-98, the aggregate new capital issues declined steeply by 69.90 per cent to Rs 4,657 crore against Rs 15,476 crore in 1996-97. The amount raised by non-government public limited companies declined by 69.90 per cent to Rs 3,138 crore and that by banks and financial institutions by 66.1 per cent to Rs 1,476 crore.

The share of equity issues in new capital issues by non-government public limited companies declined further to 37 per cent in 1997-98 from 58.70 per cent in 1996-97. In equityissues, the share of non-government non-financial public limited companies declined to 77.50 per cent from 87.10 per cent in 1996-97.

This reflects the relative attractiveness of assured returns on the securities in the debt market and the absence of a possibility of capital appreciation of equities in the context of the sharp fall in the secondary market activity, the RBI states.

Notwithstanding the lower share of equity issues, the premium charged on equities by private corporates as a proportion of the total amount of equity issues increased to 56.2 per cent in 1997-98 from 23.9 per cent in 1996-97.

The average size of the new issues floated by private sector companies in 1997-98 was substantially higher at Rs 30.8 crore compared with Rs 12.4 crore in 1996-97 because only reputed and large companies were able to tap the market.

The mega issues (Rs 100 crore and above) dominated new capital issues accounting for 70.8 per cent (Rs 2,221 crore) compared with 46.7 per cent (Rs 4,869 crore) during1996-97.

"The lack of sustained buoyancy in the secondary market during 1997-98 impacted on the primary market in that the number and the amount of new issues raised during the year decreased significantly," the report states.

The private placement market was the only one which benefitted from the slump in the primary market. During 1997-98, banks, financial institutions, the government and the private sector mobilised Rs 27,069 crore through this route, accounting for 85.3 per cent of the total resource mobilisation of Rs 31,726 crore. This was in comparison to Rs 15,066 crore, which represented 49.3 per cent of the resource mobilisation of Rs 30,542 crore during 1996-97.

Acharya panel suggests book-building, demat trading

The informal group on primary markets headed by chief economic advisor Shankar N Acharya has suggested that the cost of equity issues should be reduced by popularising book-building and mandating the offer through the depository. The group has said that GDR issuers could bepersuaded to offer part of their equity in the domestic market.

The group's recommendations have indicated that in order to develop the secondary market, a low-cost communication network and a trading system are imperative and this can be achieved through compulsory dematerialisation trading.

The group has said that the concept of "at par" should be dispensed away with in equity shares and investment in infrastructure issues may be made part of priority sector lending requirement.

New instruments such as "puttable equity" or "equity commitment notes" could be allowed and a domestic depository receipt market should be created. The group has said that the facility of private placement should be restricted to not more than 99 qualified institutional investors and should be tradeable on the OTCEI.