__________________________________

The Indian Capital Market.

The Financial and Capital markets are currently in a precarious state primarily because of pre-election pressures. The threat of a higher inflation rate and higher interest costs along with a falling rupee could lead to economic instability. We expect that the first signs of political stability should bring in vast foreign capital and it has happened. The first signs that the election results would not drastically change the economic environment especially the reform process has brought back the FII's. Almost $ 2 billion dollars has been invested in the past three months alone driving the Sensex (The Bombay Stock Exchange Equity Index) up over 30%. If this trend continues along with increasing foreign direct investments then we may witness , decreasing interest rates and increasing production keeping inflation largely in control. Two such years and by the third year the rupee should be fully convertible on the capital account. The present Capital Market scenario:

• There are 22 Stock Exchanges and 7000 listed companies. The number of stock exchanges should reduce drastically.
• The major players are The Stock Exchange Bombay (Mumbai), The National Stock Exchange and The OTCEI (Similar to NASDAQ).
• Total market capitalization of around US $250 billion now.
• Except equities the other capital market instruments like bonds and govertmment papers are illiquid.
• This situation is bound to improve with depository and regulatory mechanisms being implemented.
• Dividend yield of 8- 10% is not uncommon.
• Scrips with dividend yield of 12-15% also can be found.
• BSE blue-chip P/E of 13 (as on April 1996).

• Fixed deposits - Short term deposits for a period of 1 to 3 year gives a return of 15%. (But only Indian Nationals and NRI's can invest.)
• Derivative instruments like options and futures are expected to be introduced in the near future. The National Stock Exchange is expected to start trading in Index Futures by December 1996.
• An indigenous version of forward trading badla is re-introduced in Bombay Stock Exchange.
• The securitisation concept is catching up, various new instruments are in the offing.
• Venture Capital will see increased activity as SEBI has announced the new modified policy which encourages foreign participation in venture capital funding.