SBI advice: Stronger domestic players

State-owned financial institutions, which played a key role in bringing sanity back to the markets after the January bloodbath, have now suggested that the government create an alternate investors' group such as pension funds and enhance the capabilities of existing domestic investors like insurance firms and banks.

In a presentation to Parliament's standing committee on finance on February 12, the State Bank of India has suggested that rating agencies that currently rate initial public offers (IPOs) should also give an independent view on the pricing of these IPOs.

The financial behemoth also suggested that the minimum float size should be increased to 25 per cent from 10 per cent currently of enhanced paid up capital in an effort to help curb the volatility.

During the crisis between January 18–23, the three leading financial firms made combined net purchases of Rs 4,521 crore -- Life Insurance Corporation of India (Rs 3,045 crore) SBI (Rs 921 crore) and UTI Mutual Fund (Rs 555 crore).

Admitting that these were trying times in the wake of the global meltdown, the National Stock exchange (NSE) in its presentation argued that the two IPOs of Future Capital Holdings and Reliance Power had created a liquidity crunch in the system. The Rs 491-crore IPO of Future Capital was over subscribed 131 times and Reliance Power’s Rs 10,260 crore IPO was over subscribed by 62 times. As a result, the working capital difficulties faced by brokers and investors could not move funds, resulting in closures of broker terminals, the NSE said.

The Association of National Exchange Member of India said the stock exchange must provide pre-opening and post-closing sessions in their trading systems. “These sessions play an extremely important role in proper price discoveries of the securities,” it added.