The stock markets were passing through extreme bearish phase in the last one month. Is it because the budget has not come up to market expectations? Have the sanctions imposed by various countries after nuclear tests played havoc?

FII investment started slowing down in May itself. After the nuclear explosion and sanctions imposed by various countries, they have been selling in the Indian market (FIIs pulled out nearly Rs 883 crore in May andRs 510 crore in June first week). The threat of downgrading by global rating agencies has further accentuated the problem. Then the union budget came. Here again, not only FIIs even domestic operators were expecting many things like permission for buy-back of shares and tax concessions for the primary market and while reinvesting capital gains in the market. Not many have materialised. The budget has disappointed the capital market.

Now FIIs are selling in the market. Apart from local issues, FIIs are also facing redemption problems. They had suffered badly in South-east Asian markets. The Indian market now needs funds. The government could have allowed pension funds to invest in equity. If not the entire corpus, at least five per cent of its fund could have been invested in equities. If the new Companies Act takes time, the government should have come out with an ordinance allowing buy-back of shares. This doesn't cost any thing. Buy-back will definitely boost the share prices.

How long will thebearish phase continue?

Well, it's difficult to say. I'm optimistic that things will change for the better. But the government will have to change its perception about the market. Apart from buy-back and entry of pension funds, GDR trading should be allowed in Indian market, the limit of creeping acquisition should be raised from 2 per cent to 5 or 10 per cent, safety net for small investors should be introduced, cash group settlement should be extended to one month and PSU shares should be disinvested to Indian investors instead of going for overseas GDR issues. The eight per cent import duty announced in the budget is considered as a reversal of earlier policies by FIIs.

There is talk of payment crisis after scrips reportedly pushed up by Harshad Mehta plunged leading to all-round chaos. Won't such happenings keep away ordinary investors from the market?

Actually rumours are creating all these problems in the market. We don't anticipate any payment crisis. We have a trade guarantee fundwhich will take over the assets of a defaulted broker and pay to his clients. More than anything else, ordinary investors are hassled by the cumbersome share transaction procedures. Once the depository system takes off, I feel investors will benefit immensely from problems like undue transfer delays, fake shares and so on.

Are domestic institutions capable of supporting the market? The market seems to be dancing to the tune of FIIs and speculators...

Domestic financial institutions were providing considerable support to the market in the last one month. UTI alone might have bought shares worth over Rs 1,000 crore. But I feel LIC, GIC and banks should invest more in shares. Banks should be encouraged to invest through LIC, GIC and UTI if they do not possess the necessary expertise. The concept of stock lending doesn't seem to have taken off due to the cumbersome procedures. Besides, the ceiling on loans against shares should be raised. There should be more liquidity in the market. It will alsoincrease the depth of the market.

Even as the market is showing extreme volatility, exchanges are preparing to introduce derivatives trading. Is our market safe? The cash market doesn't even account for 10 per cent of the total business...

As a regulatory system and guidelines are in place, we're prepared for introduction of derivatives trading. However, I do agree that our markets are very shallow when compared to some of the developed markets in western countries. Several thousands of scrips are listed on the B2 group of the Bombay Stock Exchange, but there is hardly any trading in these shares. Investor (who holds a B2 scrip) comes to the market for selling these shares. Our suggestion is that the settlement period in B2 group should be extended to one month. This will give some leeway to operators.

The imbalance between specified and non-specified share has produced a vicious cycle. How do you look at the general market scene against this background?

The whole market is perceived astotally lacklustre; periodic bulges in selected index scrips is treated as an aberration and used as an occasion to disinvest by all investors including institutions. Real economy has been adversely affected. Small investors who used to provide risk capital to upcoming entrepreneurs and help in rapid capital formation have shied away from the primary market as a result of an illiquid secondary market.

Besides, the private placement route route or GDR route is available to PSUs or top class Indian companies only. Promoters/bankers are not willing to provide support to brokers to make market in their company shares by providing shares or money. For many years banks have been unwilling to lend against shares. Even when they lend, it is at very prohibitive rates of interest and only against highly liquid blue chip company shares. Thus any borrowings from banks or private sources is a guarantee that the broker shall go broke.