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In a matter-of-fact letter to the finance minister, Rajeev Chandrasekhar, Rajya Sabha MP, has asked the government to address the burning issue of stock market reforms
Minister of state for finance Namo Narain Meena's startling and worrisome disclosures in Parliament regarding investor participation in stock markets has hit home hard. Moneylife has reliably learnt that Rajeev Chandrasekhar, Member of Standing Committee on Finance, in a letter to the finance minister, has called for the government to focus on and address the further deepening of the Indian stock market, as the depth of the market remains a major cause for concern. Moneylife had written about the finance ministry's startling revelations in Parliament (see: http://www.moneylife.in/article/72/8312.html and http://www.moneylife.in/article/72/8347.html).
Mr Chandrasekhar wrote, "…despite the perception of a healthy stock market in our country, the market remains narrow, shallow, illiquid and concentrated in the hands of a few individuals located in a few centres, even 20 years after India embarked on financial liberalisation and ostensibly unleashed a boom in stock investing and spreading the equity cult." Rounding off his letter, the MP wrote, "I strongly believe that reforms and further deepening of our stock market is an important policy objective for the government to focus on and address."
The letter follows Mr Meena's startling disclosure in Parliament in response to a question asked by Mohammed Adeeb, a Member of the Rajya Sabha. On 10th August, the minister said only 30.90 lakh investors traded on the National Stock Exchange's (NSE) cash market in the April-June quarter. Of these 52% were retail, High Net-worth Individuals (HNIs) and corporate customers. Institutional investors and proprietary traders accounted for 48% of all trading (24% each).
The figures as broken down by Mr Meena are indeed worrisome for policymakers. The minister said that 90% of trading in the April-June 2010 period came from just 192,200 investors. Further, the minister said 80% of turnover came from just 41,654 investors. In other words, 1,50,546 investors (78%) accounted for just 10% of trading turnover. Further, the minister said 8,727 investors accounted for 70% of turnover among which 413 were proprietary traders, mainly brokerage houses. Mr Meena also said that 60% of trading came from a mere 1,563 traders and half the trading turnover (50%) came from a shockingly low 451, of which 156 were proprietary traders!
Highlighting these figures in his letter to the finance minister, Mr Chandrasekhar wrote, "I am sure these figures would be extremely worrisome for the government and yourself." The data shows that the market has neither depth nor diversity and only a small segment of Indians are involved in it - that too in the form of speculation by day traders in a few select products including the NSE's main index, Nifty.
The reality about the depth of Indian stock markets appears to have hit home, at least among a few government officials. It remains to be seen whether this translates into any meaningful action on the part of the government.