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'Step up regulatory process, punish wrongdoers'

The Survey complimented investors for a 36% surge in stock markets and mobilisation of over Rs 30,000 cr by industry through public issues.

india Updated: Feb 27, 2006 14:50 IST

Complimenting investors for a 36 per cent surge in stock markets and mobilisation of over Rs 30,000 crore by industry through public issues, the Economic Survey asked the government and regulatory authorities to step up investigation and surveillance process to prevent stock market scams.

Exuding confidence that considerable investment was in the pipeline in the coming months, the Survey, presented in Parliament, said that it was a must to remove the problem of multiple bids by individuals seeking to profit from the quota of retail investors at the discretion of bankers or government.

This could be addressed by considering a pure auction for price discovery at the IPO on the lines of secondary market that saw the reflective BSE index, crossing the 10,000 points mark on February 6 this year, the survey said, adding that steps were must to improve disclosures and develop derivative and bond markets.

Pointing out that full investigation into multiple bids by individual investors in the IPO auctions is still underway, the Survey called for strengthening the investigation and surveillance process to have a steady stream of success in enforcing rules, and punishing wrongdoers, with well-prepared and well-argued cases that are upheld by the courts.

It said stock market index returns of 11 per cent in 2004 followed by 36 per cent in 2005 provide a good measure of investor sentiments.

Pointing out that the bell-weather BSE Sensex crossed the 10,000 mark on February 6,2006, the survey said both Nifty and Nifty junior also delivered strong positive returns in the recent four-year period.

The survey said of Rs 30,325 crore raised on the primary market for equity in 2005, Rs 9,918 crore were made up by 55 companies which were listed for the first time.

The number of initial public offerings (IPOs) per year, on the rise since 2002, increased from 26 to 55 between 2004 and 2005.

In December 2005, there were 2,540 companies, where stock market trading took place on at least two-thirds of the days, the survey said, adding these companies had a market capitalisation of Rs 24,70,000 crore.

The impressive returns on indices in the last four years have been associated with fairly stable price/earning ratios, the survey said, adding that the bulk of the retuns were obtained through growth in earnings of companies.

The Survey also said volatility of the equity market in 2005 was at a low level, partly reflecting the end of the uncertainty associated with general elections of 2004.

In terms of the composition of market participants, the equity market continued to be dominated by retail investors.

Pointing out that mutual funds were not using the full market potential for the benefit of small investors, the survey said they were allowed participation in the derivatives market to bring out a level playing field vis-a-vis FIIs.

The net investment from foreign institutional investors on equity spot market rose from Rs 38,965 crore in 2004 to Rs 47,182 crore in 2005, the survey said.

The Finance Ministry has formed an expert group under the chairmanship of Chief Economic Advisor Ashok Lahiri to look into issues of encouraging FII flows and checking the vulnerability of capital markets to speculative flows, the survey said.

First Published: Feb 27, 2006 14:22 IST