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8. OVERVIEW OF SECURITIES TRANSACTIONS IN INDIA:

8.01: September 1998 is hardly an appropriate time to disclose the scenario of Stock Exchanges in India. Despite a good monsoon in the year 1997 and satisfactory quarterly results of the Indian Companies, a sluggish atmosphere prevails over all the Stock Exchanges in Bombay. There has been a sharp decline in the listing of new companies over the Stock Exchanges of India in the year 1998. The Indian Stock Markets have traditionally been dominated by big institutional investors like the Unit Trust of India (UTI), Life Insurance Corporation of India (LIC) and Nationalised Banks. Private mutual funds were allowed to operate in India only since the year 1993. The UTI holds about 15% of the total floating stock. The total investment of Foreign Institutional Investors (FII) as of May 1998 was Rs.380.5 million which is 6.43% of the total market capital. Out of the total market capitalization of Rs.5618.49 million at BSE, Rs.2324.39 million i.e. 41% was accounted by the top 50 companies only. The other 150 companies accounted for around merely 10% of the market capitalization. It therefore does not require substantial amount of money to influence the top 10-20 scrips in the Indian Capital Market to create a speculative trend therein. The seeds of South East Asian crisis were sown when China devalued the Yuan by 33% in the early 90s and they grew in the Indian Securities Markets with the great scam of 1991-92 created by the broker, Mr. Harshad Mehta. The crises were further encouraged by political instability, the sanctions imposed by US Government and weakening of Japanese Yen.

8.02: Until the Second World War, raising of capital in India from the Securities Markets was free from all controls. After the Second World War, the Defence of India Rules were introduced which imposed restrictions for the first time on the issue of capital. They continued even after Independence and were formerly incorporated in the Capital Issues (Control) Act, 1947. The Act was administered by the office of the Controller of Capital Issues (CCI). After Independence in the year 1947, the Indian Government followed the policy of giving predominance to public sector enterprises in the economy. As part of this policy, various industries were nationalised and certain sectors of economy were reserved for the public sector. Private Sector Corporations were restricted and access to equity was only through the CCI.

8.03: Under the Capital Issues (Control) Act, 1947, the companies were required to obtain approval from CCI for raising capital. New companies were allowed to issue shares only at par. Only existing companies with substantial reserves could issue shares at a premium which had to be calculated in accordance with CCI norms, which were based on an estimate of "fair value" and not on the "prevailing market price". There were tight controls on the issue of rights and bonus shares. With the repeal of the Capital Issues (Control) Act, 1947 on 30th May 1992, Companies are now able to raise capital without requiring any consent from any authority either for making the issue or for pricing it. Restrictions on rights and bonus issues have been removed. New as well as established companies are now able to price issues according to their estimate of market conditions.

8.04 (a): The growth in the Indian Capital Market was kicked off for the first time by the heavy handed policy laid down under the Foreign Exchange Regulations Act, 1973 (FERA). FERA forced multinationals to reduce their shareholdings to 40%. Multinationals unloaded en-masse and that too very cheaply. The shares of Hindustan Lever bought during that period at Rs.16/- are today (on 5th August 1998) quoted at Rs.1670/-. Ponds shares then sold at Rs.23/- have today (on 5th August 1998) grown to Rs. 1239/-. In those early days of '70s, most brokers only dealt in forward group and very few touched cash scrips.

8.04 (b): People who missed FERA were provided an opportunity to become millionaires in their life time by Mr. Dhirubhai Ambani of Reliance Textiles and Industries. The public issue of Rs.2.82 crores of Reliance Textiles & Industries in November 1977 was over subscribed 8 times despite the fact that Hindustan Lever and Hindustan Dorr-Oliver had issues around the same time. Since then the Reliance Group has tapped the capital markets 33 times raising Rs.10,000 crores. From an initial base of 6200 shareholders, the Reliance Family now has 4.3 million members, which means that one out of every four investors in India owns Reliance shares.

8.04 (c): Then came Harshad Mehta, riding the back of the economic liberalization and the optimism which it generated. Mehta, illegally funded by Banks, sent the stock prices sky-high. BSE Index which was 805 in April 1990 went to 1245 by March 1991 and by the end of 1992, just before the SCAM was detected, went beyond 3500. During this phase when UTI launched its Master Gain '92 Scheme, 6.2 million applicants poured in Rs.4712 crores.

8.05 (a): In the year 1981 there were 2 million investors. By 1991, the number grew to 9 million. Today there are estimated 16 million investors in India.

8.05 (b): In essence 40% of the investment population consists of newcomers whose investment history is less than 5 years old.

8.05 (c): From 1980 to 1995, in 15 years span, the number of listed companies increased three times. In 1980 there were 2265 listed companies. In 1997 there were more than 7000 listed companies.

8.05 (d): The daily turn over of the BSE increased to around Rs.250 crores. During peak time more than 100,000 deals are conducted in a day on the BSE compared to 40,000 deals on the London Stock Exchange and 80,000 deals on the New York Stock Exchange.

8.05 (e): The National Stock Exchange also has a daily turn over of Rs.100 crores. The Unit Trust of India has recorded that the number of its unit holders grew from 1 million in 1981 to 12 million in 1995.

8.05 (f): Investment in shares, debentures and units as a percentage of household savings increased from 3.8% in 1970-71 to 15.8% in 1993-94 - a four fold jump.

8.05 (g): Apart from the quantitative changes there was a qualitative shift. The new lot of investors were young and well informed. They were capable of making their own assessment. The average investor now is far more informed than what he was a few years ago. He is no longer a gambler who wants quick returns and is willing to spend on reading about companies and collecting data.

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