Indian IPO Market - Prospects & Challenges
(by R.Kannan)
(This article of mine was originally published in "ICFAI READER" issue of October 2004
published by The ICFAI University Press)

Primary Market - Effect of Dependency on Foreign Investors
(Allotment to foreign investors has increased in the primary market. However, there is a fearthat too much
dependency on foreign investors would adversely affect the market. Do you agree?)

A country of the size of India cannot depend exclusively or heavily on foreign investment, fixed or floating. We can develop a number of big-ticket domestic investors in the market. Some of them are:

1. High Net worth and portfolio investors within the country. This depends the quality service of dependable portfolio managers available in the country. As per SEBI the portfolio manager should be a corporate body.

2. Commercial Banks. They are now permitted by RBI to invest up to 5% of their SLR investments in the equity/debt market. They should be permitted to trade in the securities market to this extent. 5% SLR would be a sizeable amount. This amount may in the coming years swell to the level of Rs.5,00,000 Crores.

3. Mutual Funds in respect of Equity/Growth funds, where part or full amount of the subscribed amounts are invested in equity market. Mutual funds have enormous potential for growth in our country. But SEBI, AMFI needs to regulate their proper functioning.

4. Insurance Companies, PF/Pension Funds should be allowed to park a part of their investible funds in the primary market securities. They have large long-term funds at their disposal.

5. We have discussed earlier the need for and the strategy for pooling part of savings of household sector in the primary/secondary markets.

6. All the above investors can hedge the risk they are exposed by taking recourse to the Derivatives Market.