‘Financial sector is largely dominated by bank lending, but there is an urgent need to diversify this by facilitating
fund-raising through capital markets’
SEBI has recommended reducing the hold period before listing from two years to one year to help startups attract investors.
It will be challenging to achieve the government’s ambitious plans of investing Rs 100 lakh crore in infrastructure if the bond market is not adequately developed, Ajay Tyagi, chairman of the Securities and Exchange Board of India (Sebi), said on Wednesday. Citing the “well-known” problems with banks, he said some investments are best funded through the capital markets. The Indian financial sector is largely dominated by bank lending, but there is an urgent need to diversify this by facilitating fund-raising through capital markets, he said at the CII’s 11th Financial Markets Summit.
Tyagi said deeper structural and regulatory changes are needed for the ‘development of corporate bond market’, which call for coordination between the government and financial sector regulators. Fund-raising through capital markets — both equity and debt — over the last two-three years averaged around Rs 9-9.5 lakh crore per year, but it needed to be ramped up, he said.
Calling the recent rally in the market a broad-based one, he said between April and September, 63 lakh new demat accounts were added, compared with 27.4 lakh accounts during the corresponding period last year. Foreign portfolio investors have invested $11 billion in equity markets so far in this financial year.
“We have observed that the recovery in the market has been broad-based. Firstly, it is not just the large cap, but also the mid and small cap indices which have recovered since the lows hit in March 2020. While the large cap and mid cap indices have increased around 55%, the small cap index has increased around 70%,” said Tyagi.
The recovery is also broad based because it happened outside the indices as well. Out of the stocks that have traded on the NSE and BSE, more than 93% on the NSE and more than 75% on the BSE have yielded positive returns this fiscal as on September 30.
Not only the secondary market, but even the primary market has seen a lot of traction in last few months. On the equity side, total funds raised touched Rs 1.54 lakh crore till September, just short of Rs 1.58 lakh crore raised during the corresponding period last year. Almost all of the IPOs and rights issues this year have been oversubscribed, Tyagi said. Further, more than Rs 22,000 crore equity issuances are in the pipeline.
On the debt side, funds raised through corporate bonds in FY21 till September 2020 are around REs 3.8 lakh crore, which is in fact around 25% higher compared with the year-ago period.
The Volatility Index went up to 84 in March due to the declaration of the pandemic, from an average of 15 in the previous three months. It is now stabilised at around 25. “Sebi took some timely surveillance measures with respect to exposures and margins to curb volatility…” said Tyagi. “We are and will continue to be vigilant for any rapid movements in the markets and with regard to any issues which may have systemic implications,” the Sebi chief said.