16 March 2012

Capital markets - and the budget

The budget speech talks of the following important proposals regarding the capital markets:
  • Allowing Qualified Foreign Investors (QFIs) to access Indian Corporate Bond market;
  • Simplifying the process of issuing Initial Public Offers (IPOs), lowering their costs and helping companies reach more retail investors in small towns. To achieve this, in addition to the existing IPO process, I propose to make it mandatory for companies to issue IPOs of  10 crore and above in electronic form through nationwide broker network of stock exchanges;
  • Providing opportunities for wider shareholder participation in important decisions of the companies through electronic voting facilities, besides existing process for shareholder voting, which would be made mandatory initially for top listed companies; and
  • Permitting two-way fungibility in Indian Depository Receipts subject to a ceiling with the objective of encouraging greater foreign participation in Indian capital market.
These are good initiatives. Allowing QFIs into the Indian corporate debt market will deepen that market and make it more vibrant. Initiating e-IPOs would make that market more efficient and create a wider base (if I have understood the second point correctly). Electronic voting of shareholders would be great for shareholder activism in listed companies - and we are able to get this before the Companies Bill 2011 introduces it (in the indefinite future). Finally, the weird law with regard to IDRs which had nearly killed the nascent market in IDRs (see my previous post based on an FT piece I did) seems to be reversed. The Standard Chartered IDR, the lone security in its class climbed 20% in sympathy. 

Another important development is the removal of 9 permissible sectors for venture capital funds - for getting a tax exemption. Now any investment by venture capital will get the tax benefits - the government is not picking winning sectors for such investment - great news for the VC sector and for growth in the SME space.   

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