Fast forward to the road ahead

Will a crises-ridden 2001 lead to a stable financial sector in 2002?

Sourav Majumdar

As I sit to write this column, news has come in that the former Big Bull, Harshad Mehta, has died. The year 2001 has ended with yet another casualty, bringing the curtains down on one of the most turbulent, violent yet eventful years in the history of the world. As we look back on 2001 from the perspective of the Indian stockmarkets and the corporate sector, there is little doubt that the year gone by has been one of the worst phases for both the markets and the issuers of capital.

When we stepped into 2001, things were quite different. There was a raging debate on the tech meltdown, and there were signs of slowdown, but not too much worse. We had been chronicling the unfolding developments in the capital market — the deliberations of the Securities and Exchange Board panel on reviewing the takeover regulations and some rivetting battles being played out in corporate India, among them the Bajoria-Bombay Dyeing face-off and the Dalmia-Sheths struggle for Gesco Corporation. Much of all this has faded into corporate history.

Till date, there’s no sign of the formal steps the takeover panel has taken to amend the existing takeover code and get it in step with the times. But more than anything else, those following 2001 will heave a sigh of relief that, despite all the turmoil, tension, turbulence and terror of Annus Horribilis, there have been some key steps forward.
Many of these steps have been the result of the crises which gripped the corporates and markets this year but, as long as the Indian financial sector shows the resilience to withstand these and learn its lessons for the future, even bad years like the one just gone by need to be viewed positively. A Union budget hailed by India Inc as one of the very best was greeted a few days later by a huge stockmarket crash which went on to expose the biggest market scam since 1992, involving mega corporates, high-flying stockbrokers and lesser known cooperative banks. Speculators were able to ramp up the markets with ease taking advantage of weak or non-existent surveillance systems. Then came the Unit Trust of India crisis and India’s premier investment institution found itself teetering on the brink of collapse. A series of arrests followed, and it looked as if the crisis would never end.

But look at some of the changes which this terrible year has brought in. Changes which, till the other day, looked distant targets for the markets and the financial sector and things which were only meant to be discussed at seminars and then put off for sometime in the future. The markets have moved on to a rolling settlement mode, and soon they would be shifting to a T+3 module from the present T+5 system. Badla, and all its ridiculously named avatars like ALBM and BLESS, have been junked. Instead, the Indian markets, till the other day reluctant to get into derivatives, are witnessing huge volumes in the derivatives segment, much to the delight of the National Stock Exchange authorities, which have left no stone unturned to popularise derivatives trading. Stock exchanges which have been softpedalling on reforms are either falling by the wayside or realising that they either have to shape up or down their shutters.

Corporatisation and demutualisation of exchanges, till the other day a distant dream, is today a reality, and the markets regulator has just announced a framework for this. No longer will a handful of stockbrokers be able to run a bourse like their private fiefdom, bend rules to suit their trading positions and walk away with the moolah at the expense of the small investors. Exchanges will now be run like companies — with accountability and the same level of corporate governance which they demand of the companies they list.

On UTI, a slew of changes have already taken place. But the biggest has been the public announcement of the net asset value of its flagship US-64, thus far shrouded in a veil of secrecy as if it were a defence secret. Even with the announcement of the NAV, at a woefully low Rs 5.94 per unit minus the reinvestment option, the markets have shown remarkable resilience in taking this in their stride. The changes in UTI have also been taking place quickly and now there is another historic step forward — that of bringing US-64 under the Sebi regulatory framework, and setting up an asset management company in UTI like all other mutual funds. These issues had been debated ad nauseam for years, but it took the 2001 crisis to bring about a revolutionary restructuring at the Trust.

I have just listed out only a few of the changes which came about as a result of this terrible year. As we go into 2002, let’s hope the lessons we have learnt from the crises of 2001 put in place better systems and practices in the country’s financial sector and stability is restored to it once again. Happy New Year!