10. Performance of Indian Capital Markets – Recent Scenario
The Indian economy has shown unprecedented growth in the last few decades post liberalisation. A robust capital market supplemented by technological advancement and a strengthened legal framework has played a major role in driving the growth thus far.
Indian capital market has done fairly well in 2018 as compared to other global markets. In this success, IPOs hold a special place.
The reasons for robust growth of Indian Capital Market are:
1. The promising corporate earnings combined with a rising domestic investor appetite
2. Development of junior platforms such as the NSE Emerge and BSE SME with a corresponding surge in offerings on these IPOs have been a bumper trend in recent times
3. Having overcome the effects of two bold moves by the current government, the demonetisation drive of 2016 and implementation of the Goods and Services Tax led to a better-than-expected corporate earnings and a stable GDP growth
4. The policy changes brought about by the market watchdog SEBI have also played a very important role in maintaining the current pace of fundraising activity with factors such as good corporate governance, robust financials and the timing always playing a critical role in the success of any public issue.
10.1. Recent Measures undertaken by the SEBI
Few measures undertaken by SEBI in the year 2018 to make the market environment IPO friendly are as follows-
To uphold investor confidence and preservation of interest of all stakeholders, following steps have been taken -
1. The definition of independent director has been tweaked to enhance their accountability in a scenario where this role has often been called into question in the wake of several scams.
2. The role of the independent directors will now be evaluated for their performance as well as fulfilment of the independence criteria by the board of a listed entity.
3. Further, the year 2019 and 2020 are set to witness the implementation of the cap on maximum number of directorships such as no person must serve as an independent director in more than seven listed entities. Same goes for related party transactions.
4. The Board of Directors has now been made responsible for review of the approved policy once every three years and a complete ban on a related party from voting on any related party transactions.
5. Emphasis has also been laid on the separation of the positions of chairperson from that of a managing director or a chief executive officer. This, too, is going to become a reality by the year 2020 for top 500 listed entities to start with.
To ease the process of public issues so that more companies come forward and avail the benefits, following steps have been taken-
1. The replacement of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR Regulations 2009”) with the new regulations of 2018.
2. Rationalisation of disclosure requirement which include financial information to be provided for a period of three years instead of five, threshold for identifying promoter group increased from 10% to 20%, criteria for identification of group companies, etc.
3. To boost participation by a wider gamut of investors including domestic investors, the shortfall in promoter contribution can now be met by alternative investment funds, foreign venture capital investors, scheduled commercial banks, public financial institutions and insurance companies without being categorized as a promoter.
4. SEBI has also permitted anchor investors to make a minimum application of Rs.2 crores in case of SME IPOs, a move which is likely to enhance participation by anchor investors in SME IPOs.
Miscellaneous steps taken by the SEBI and the Government are as follows:-
1. It has been made mandatory for large borrowers to source 25% of their incremental borrowings from the bond market.
2. Complete ban on wilful defaulters and fugitive economic offenders from coming up with an initial public offering
3. disciplinary actions including past penalties against the promoters in the past five financial years are to be mandatorily disclosed
4. To further boost foreign investment, SEBI has relaxed the eligibility and KYC norms for foreign portfolio investment (FPIs) and allowed the FPIs a period of two years for complying with the relaxed norms.
5. The government has also relaxed FDI norms by enhancing sectoral limits across various sectors in an effort to boost foreign investment.
6. SEBI has also introduced algo-trading, a computer based trading system where investors have an upper hand in executing trades and benefit from their speedy execution.
7. SEBI has also proposed incorporating the United Payments Interface (“UPI”) with the Application Supported by Blocked Amount (“ASBA”) mechanism, in order to streamline the process of raising funds via public issue. This method will cut down the listing time for an IPO from its current 6 days to 3 days
8. Government of India in the Union Budget 2018-19 stated that: “SEBI will also consider mandating, beginning with large corporates, to meet about one-fourth of their financing needs from the debt market.”