Market Talk. ‘Expectations from the market must be rational’

Indian stocks may go through ups and downs but the market infrastructure in the country has held strong even in periods of extreme stress such as the 2008 crash.

The National Stock Exchange, the premiere stock exchange in the country, has been at the forefront, building a credible ecosystem that facilitates fund-raising while ensuring that small investors are protected.

Ravi Varanasi, Chief-Business Development at NSE, in this interview with Business Line discusses the challenges that the exchange faces and how they can be overcome.

Excerpts from the interview:

Money from PF investment was going to be the next big trigger to bring liquidity in to the stock market. But the proposal is to allow only 5 per cent of incremental flows. Is that going to be enough?

Obviously it has to happen only incrementally in the initial phase. Our sense is that EPFO will move in slowly. We welcome the initiative and expect it to be a game-changer over the coming few years.

We are also gung-ho about NPS. Already NPS has assets under management equal to ₹85,000 crore.

People can opt to park up to 50 per cent of their investment in equity. So a considerable chunk will flow into the equity market through that route also.

The additional ₹50,000 tax break given in this budget will also help. Half a dozen fund managers who are running the scheme have given good blended returns, almost close to 16 per cent. These returns will attract more investors. This is the space to watch.

What needs to change to get more investors in to the market?

Expectations from stock market needs to be rational. Most people hear stories of money getting doubled and tripled.

We are trying to educate them and tell them to expect only 16 to 17 per cent annualised returns over the long term.

In most global markets, the number of investors has increased mostly due to pension money. We are now experiencing that through EPFO and NPS.

But in the last financial year (FY 15), we have added 15 lakh new investors.

They are first-time investors. Many brokers are pushing SIPs on ETFs for investment.

Last year, we saw a good traction here; about 30,000 new accounts were set up. People are willing to put money into market like they do in a recurring deposit.

For increased penetration of equity culture, opening demat and trading accounts should become as easy as opening a bank account. We have been suggesting for some time that based on the KYC done for bank accounts, trading accounts should be allowed to be opened.

What ails the IPO market? We are not seeing very strong activity there yet.

The IPO pipeline is fairly strong; 25 to 30 fairly large issues are lined up. The issues so far have performed well.

Many companies are confident that they will be able to make the offer between now and December.

There are good quality issues, of over ₹500 crore, waiting to make a public offer.

Is the increase in FPI holding in the market a cause for concern?

It is not a concern. The holding, now at about 20 per cent, is normal and equivalent to foreign investor holdings in comparable emerging markets.

Most of these FPIs are long-term investors.

We are also seeing some interest from trading outfits.

New paper coming to the market through IPO line up and PSU disinvestment and retail participation through EPFO and NPS money would diversify the holdings.

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