New Delhi, Nov. 21: Top finance ministry officials fear that foreign institutional investors will gain total dominance over the Indian stock market once UTI-II is sold off.
They also believe that the Unit Trust of India could easily earn the Rs 15,000 crore which the government has promised it as a bailout, simply by block sales of its stake in some top 50 companies without creating a run on the bourses or any major erosion of the mutual fund’s earning capacity.
Government officials argue that Indian companies and MNCs operating in India would be only too happy to buy back huge chunks of shares held by UTI in structured off-market deals at suitable premiums given the fact that these could be sources of greenmail for them if released in the open market.
UTI-II, which has an asset base of Rs 19,375 crore, is the single largest mutual fund with a 25 per cent market share, much higher than the combined market share of the three largest private run MFs—Prudential ICICI, Birla Sun Life and Templeton.
Officials fear that if sold, UTI-II would be snapped up by either these or other foreign institutional investors who are currently heavyweight players on the Indian bourses.
UTI-II accounts for about 50 per cent of the mutual fund industry’s exposure to the equity market and most of its investments are in high quality assets. If concentrated in the hands of one single private player, it would give the latter immense clout not only over the bourses but also over large Indian firms.
In fact, the spectre of foreign players dominating the bourses has spooked the government for quite some time and is one of the key findings of various reports prepared by the Reserve Bank of India and Sebi on various stock market scams.
Meanwhile, the chief executives of the State Bank of India, Punjab National Bank and Bank of Baroda today met finance secretary S. Narayan to apprise him about the progress on the new asset management company which will take over the net asset value-based schemes of UTI.
“The new AMC has been registered and shareholders are now awaiting permission from the Reserve Bank and Sebi to start operations,” the finance secretary told reporters after a meeting with UTI chairman M Damodaran here today.
The AMC is expected to start operations with an initial capital of Rs 10 crore and will be headed by a professional who will be offered a market linked pay-package.
The Centre had in August announced the splitting of UTI into two parts—UTI-I and UTI-II. While UTI-I would control all the assured return schemes and be totally guaranteed and controlled by the government, UTI-II was, in due course to “be professionalised and eventually privatised.”
UTI ran into trouble last year after a cash shortfall that saw it unable to meet redemption pressures.
This led to a freeze on sales and repurchase of units issued by its flagship fund US-64, triggering off a chain of events that led to the eventual arrest of former chairman P. S. Subramanyam and two executive directors and a host of revelations about shady investment decisions.