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The primary market has had a direct relation with the secondary
market. The Bull Run in the secondary market has in the past enabled
and emboldened companies to enter the market with big issues and
attract investors and traders to invest in public issues to reap high
profits following their listing.
The BSE Sensex increased significantly from a level of 13,072 as
at end-March 2007 to its peak of 20,873 on January 8, 2008.
However with portfolio flows reversing in 2008, partly because of
the international market turmoil, the Sensex has now dropped to
a level of 11,328 on October 8, 2008, in line with similar large
declines in other major stock markets.
The impact of FIIs is so high that whenever FIIs tend to withdraw the money
from market, the domestic investors become fearful and they also withdraw
from market.
In case of January 18, 2008, the Sensex lost almost 687 points. Here, the net
sales by FIIs were Rs. 1348.40 Crores. This is a major contributor to the fall
on that day.But contrary to that day, take the case on January 21, 2008, the
Sensex lost 1408 points and the gross sales was Rs. 1060.30 Crores and the
purchases were Rs. 3062.00 Crores. So this can be concluded that after the
fall of market, FIIs had invested again into the market.
Depreciation in rupee value has added to the worries of FIIs. Depreciation in
currency leads to losses (in dollar terms) for the FIIs, as they have to
periodically represent to market value of their investments overseas. Many
speculate the fear of depreciation of rupee even more against the dollar. If
that happens, FIIs will have to report huge losses on the currency account,
and hence are pulling out from the domestic markets.
From the above data, it can be noted:
Increase in net investments till 2005.
Small decrease in investments in the year 2006, but there
was a steep increase in the year 2007-08. This was the
best period in Indian stock market where stock prices got
increased and the market was in good mood.
In early 2008, the government liberalized its policy
towards foreign investment in the following key economic
sectors by increasing the maximum permitted foreign
investment to:-
The move was aimed to keep track of foreign flows into the
country. However SEBI has removed the existing limit on
distribution of FII investment a day after the government
doubled the cap on their investment in corporate debt to $6
billion. This was a result of FII’s pulling out of the Indian
equity market (US$11.56 billion) and pumping money in
the debt market (US$1.8 billion).
So far as security receipts issued by the Asset Reconstruction
Companies (ARCs) are concerned, the total holding of a single
FII in each tranche of scheme must not exceed 10 per cent of
the issue.
Besides, the total holding of all FIIs put together must not
exceed 49 per cent of the paid up value of each tranche of
scheme of security receipts issued by ARCs.
This will also enable Indian companies to get more funds for
their expansion plans
A STEP TOWARDS
INTEGRATION OF THE
MARKETS
In recent years, a growing number of countries- both
developed and developing - are opening their stock
markets to foreign investors and abolishing laws restricting
their citizens from investing abroad.
The bank will hold shares of the foreign issuer and issue depository
receipts to U.S. investors, who will thereby achieve the
convenience of denominated trading. These depository receipts
then may (or may not) be listed on a Stock exchange.
Cross-listing increases the shareholder base, the firm's risk is shared among more
shareholders, and this increased diversification reduces the firm's cost of capital.
For a time, the empirical evidence seemed to confirm this explanation because the
stock prices of cross-listing firms seemed to rise and then decline post-listing.
IMPACT--IDRs
By dual-listing their stock, firms are expected to experience an
increase in stock price since investors in the foreign market
are willing to pay a higher price for the stock. The result is due
to the stock having a lower expected return, and therefore a
lower cost of capital for the firm.
From the existing shareholder's point of view, their wealth
increases as the value of their securities rises. Multiple listing
can thus be a tool for increasing shareholder’s value, simply
by taking some procedural steps and bearing the
administrative costs involved.
The regulatory concerns related to cross listings
Informed trading is general form in which hold private
information with regard to stocks, issuing company.
Insider trading which is not considered ethical, will be done in
legal manner by denoting trading by persons who are in
special relationships with the firm, as defined by the law.
SUGGESTIONS
1. Increase rupee liquidity
2. Increase dollar liquidity
3. Exchange rate policy
Other suggestions:
Focus more on growth by improving public and private
investment continue to take measures for improving
liquidity enhance investor confidence to ensure growth of
industry.