India’s apex bank, RBI says that the country needs more quality stocks to cater to the rising demand among investors. In its latest Financial Stability Report, the central bank observed that the last six years have seen muted growth in the number of listed companies.
India’s primary markets have seen an unprecedented boom in 2017, with more than Rs 60,000 crore raised in the year so far. However, India’s apex bank, RBI says that the country needs more quality stocks to cater to the rising demand among investors. In its latest Financial Stability Report, the central bank observed that the last six years have seen muted growth in the number of listed companies. “Over the past six years, growth in listed companies in terms of number has increased marginally by 15 per cent on both the exchanges,” the apex bank noted. RBI points out that even though there has been a remarkable increase in the exchange turnover, the fresh supply of equity remains muted.
“The turnover of the scrips in the group 501-1000 (in terms of market capitalisation) increased by nearly 36% as compared to a 12% increase in the case of the top 50 scrips and a 19% increase in the total exchange turnover. However, fresh supply of equities remains muted as capital raised through offer for sale’ (OFS)20 is much more than that raised through ‘initial public offerings‘ (IPOs),” says the report. Laying specific emphasis on quality of listed companies, RBI said, “ In the long run, there is a need to increase the supply of quality listed securities so as to be able to meet rising demand, particularly through the mutual funds route.”
In the same report, RBI says that the Indian investors have shown an increasing preference to midcap and smallcap stocks in the last two years. “Another important feature of the evolution of Indian equity markets is investors’ increasing interest in small cap and mid-cap securities over the last two years as seen from a significant increase in turnovers in beyond top 100 scrips in 2016-17 over the previous financial year,” the report says.
The apex bank also notes the swelling assets of mutual fund industry, buoyed by DII investments. “Mutual funds as an asset class seem to be entering the maturity phase in India with broadbasing of investors and geographical spread. Assets under management (AUM) increased from Rs 17.55 trillion in March 2017 to Rs 20.40 trillion in September 2017,” RBI said.
Taking note of the SIP investments, RBI said, “Contributions to mutual funds through systematic investment plans (SIPs) has added further stability to this sector.” The central bank also noted the rising investments from B-15 cities in India. AUM of B-15 cities grew 230 per cent in 2016-17 of what it was in 2012-13, according to the report. “Diversity in terms of the investor base will provide resilience against redemption pressures in case the markets see corrections in their valuations,” RBI said in the report.