Boost to market participation

The Union Budget 2017-18 has provisions to improve the quality as well as the quantity of participation in the stock market.

The Government is clear about making the most of the pick-up in the IPO market. India’s IPO market witnessed a strong hit between 2011 and 2014. However, IPO market has gathered momentum over the last couple of years. This is evident from the number of IPOs which has increased from 47 in 2014 to 64 in 2015 and 94 in 2016. With the markets already geared for some big bang IPOs like the NSE this year, the government will also join the race with the IPOs of IRCTC, IRFC and IRCON. As seen in the past, big names have always attracted strong participation in the Indian market and will also leave the sentiment positive in the market. Nithin Kamath, Founder & CEO, Zerodha, a discount brokerage says “IRCTC is a well-known brand. More and more such big name IPOs will increase the retail participation in the market”.

Additionally, the announcement to categorise the Non Banking Financial Companies (NBFC) regulated by the Reserve Bank of India (RBI) with above certain net worth as Qualified Institutional Buyers (QIBs) may also aid in improving the quality of market participation.

Following the recent success on the listing of the second tranche of the Central Public Sector Enterprises (CPSE) Exchange Traded Fund (ETF) last month, the Finance Minister has announced the launch of a new ETF with diversified CPSE stocks and other government holdings in 2017-18. Deepak Jasani, Head of Retail Research, HDFC Securities says, "the strong gains on the listing day of the previous tranche of the CPSE ETF may keep investors attracted towards similar instruments in the future as well. However, we will have to wait to get some clarity on which companies will be included under other government holdings (in addition to CPSE stocks) as mentioned in the Budget".

The announcement to make the registration process for market intermediaries (brokers, mutual fund, portfolio managers etc) completely online by the Securities and Exchange Board of India (SEBI) may not bring big cheer for the new entrants. Experts believe that though this is going to ease the initial mechanism of applying, it is not going to reduce the overall tenor of the registration process which would take six months anyway. Also they highlight that since it involves a lot of documentation how it is going to be implemented practically will be a challenge.

The new IPOs and CPSE ETFs would be good avenues for investments from the retail investors point of view while the inclusion of NBFCs in the QIB list and making fully online the registration for market intermediaries are a welcome move. Collectively, these moves may bring better liquidity and also improve the quality of participation in the market.