The Telegraph
Since 1st March, 1999
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Bullish market ready to get a long-term partner

Mumbai, Aug. 23: Finally, the Indian stock markets will get a long-term committed investor.

With the cabinet deciding to allow pension fund managers to offer equity-linked schemes, the capital market, which is already on a bull run, is expected to gain further momentum.

“Indian equity markets lacked long-term investment and this can bridge the missing link, which is so crucial for the equity markets,” said Dhirendra Kumar of Value Research Online, an agency that tracks mutual funds and equity markets.

“With pension funds now being allowed to earmark a portion of their proceeds in the equity market, we will now have a committed fund available month on month,” Kumar added.

Marketmen feel proper growth in the Indian stock markets has been restricted due to the lack of a long-term commitment from foreign investors, who by virtue of being big investors create aftershocks whenever they enter or exit.

Similarly, mutual funds when faced with redemptions liquidate from positions leaving other investors in the same stock high and dry, despite no change in the fundamentals of the company.

The first option formulated by the government would allow investment of 60 per cent of funds in government papers, 30 per cent in corporate bonds and 10 per cent in equities.

The second would allow 40 per cent in G-secs, 40 per cent in corporate bonds and 20 per cent in equities. The third option would allow 50 per cent investment in equities and the remaining half equally in government and corporate bonds.

Further, the government will allow individuals to chose any of the three options. According to a senior corporate official, it will also provide a great fillip to the corporate debt segment which is practically dormant due to lack of investor interest.

Kumar says that by investing even 10 per cent in equities, employees can expect better returns. The amount flowing into the markets will be sizeable as the government is the biggest employer in the country.

He feels it should also be extended to private enterprises with the services sector opening up in the country.

However, Arun Kejriwal of Kejriwal Research and Investment services was more circumspect. “Will any fund manager dare to invest in pension funds in the stock markets when the market is so charged up'” he asks.

The total pension liability of the central government employees rose to 1.66 per cent of GDP in 2002-03. The Centre will have to spend Rs 23,158 crore for pension outgo this fiscal. Pension liability accounted for 9.7 per cent of tax revenue in 1993-94 and increased to 12.24 per cent in 2002-03.

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