Ficci for reforms in capital, bond mart

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Mumbai, Jan 14 : The Federation of Indian Chambers of Commerce and Industry (Ficci) has stressed the need to carry forward the reform process in the domestic equity and corporate bond market, which will help the country finance its infrastructure deficit.

In a study released just before its two-day conference on capital markets—CAPAM 2007—to be held in Mumbai from January 15-16, the Ficci study says, the process of carrying forward the reforms would help in mobilising long term savings, by providing new savings vehicles, and for improving the range of instruments necessary to meet the country’s long-term investment needs. Such steps may help build a well developed capital market that can help in diversifying risk within the economy and to maintain stability. Ficci’s policy note has also laid emphasis on the need for developing markets for derivatives and securitisation, strengthening the institutional investor base including pensions, insurance, and mutual fund industries and also improving risk management.

Developing securitisation and derivatives markets is critical to enabling more efficient financial intermediation, including of long-term capital, because these markets can help banks transfer parts of their traditional credit risks to capital markets. Securitisation involves transforming illiquid assets into securities that can be traded on the securities markets, thereby providing an important mechanism for risk sharing-in particular, for credit risks. For, investors, these securities offer yields that exceed those on comparable corporate bonds and provide diversification to different forms of investments.

Interestingly, as securitisation can be an important means of risk transfer, it also introduces risks of its own nature. This, in turn, requires the development of risk management instruments and the presence of reliable counterparts, thus necessitating the need for a developed derivative markets for an effective hedging strategy.