10.5.1 Capital market statistics for convenience are divided into five broad areas namely, primary market, private placement market, secondary market, mutual funds, and operations of foreign institutional investors (FIIs).
10.5.2 Data on new capital issues include resources raised through equity, debentures and bonds by non-government public limited companies, banks and financial institutions, Public Sector Undertakings (PSUs), etc. Equity issues can be classified as public issues on a prospectus basis or rights issues. The issue of bonus shares and disinvestment of existing shares through offer for sale and private placement are excluded from new capital issues.
10.5.3 Before the establishment of Securities and Exchange Board of India (SEBI), the RBI was the primary source of data dissemination. With the establishment of SEBI, the primary responsibility was shifted to SEBI. However, for purpose of continuity, RBI still collects information on resource mobilisation from the primary capital market. While, in general, the coverage by SEBI is more comprehensive, the break-up of prospectus and rights issues by instruments and category of issuer is not available, which are provided by RBI. SEBI also does not make available information on resource mobilisation by investor category and on cost of issues. All entities have to follow SEBI guidelines while making a new public issue of capital. These data, in general, are disseminated through its Monthly Bulletin and website with a time lag of about six weeks. The Annual Report of SEBI also publishes data on various aspects of resource mobilisation in the primary market. SEBI classifies all new issues by types of floatation (prospectus or rights), instrument (debt or equity), industry and geographical region. While SEBI compiles data on the basis of offer documents and statutory returns filed by issuing entities, RBI collects data on the basis of the prospectus and letter of offer by issuers. Data on new capital issues by the private sector in the primary market in terms of equity shares, preference shares and debentures classified in prospectus and rights are also compiled on a monthly basis and released through the Monthly RBI Bulletin with a time lag of 3-4 months. Besides, data on resource mobilisation (prospectus and rights) by all entities (private sector, PSU’s, banks and FIs in the public sector) in the primary market are published in RBI Annual Report. The RBI also undertakes an annual survey on the public response to capital issues along with data on different costs of capital issues.
10.5.4 In general, the coverage of data by SEBI is timely, reliable and adequate. However, information on certain aspects of public issues is not disseminated by SEBI, which classifies all issues into prospectus and rights. However, a break-up of prospectus and rights issues by instruments and category of issuer is not available. Also data on equity capital issues and equity capital raised, bonds issued and bonds raised, resource mobilisation by investor category, underwriting costs and by cost of issue are not available. Further, no study or survey is available on (a) capital raised from the market, and (b) details of public response to equity capital issues.
Conclusions and Recommendations
10.5.5 The primary source of data for capital market is the Securities and Exchange Board of India (SEBI). It compiles and disseminates data on a monthly basis on primary issues. The Commission therefore recommends that:
The Securities and Exchange Board of India (SEBI) should disseminate statistics on: (a) Resource mobilisation in the primary market by various categories of entities (non-Government Public Limited Companies, Banks, Financial Institutions (FIs), Government Companies (PSUs) and various categories of investors (ownership pattern of capital raised), (b) Data on firm allotments to institutional and other investors, (c) public subscriptions, (d) bond issues divided as between public issues and private placements, (e) actual mobilisation of funds through bonds, (f) Data on underwriting, and (g) Cost of issues.
The SEBI should undertake a comprehensive survey (as was done by the RBI in the past) on public response to equity capital issues – size-wise, occupation group-wise, region-wise.
10.5.6 When an issuer (a company) places its securities with a select group of investors without making it a public or a rights offer, it is called a private placement of securities. Through this method, equity, cumulative preference shares, preference shares, debentures and bonds are issued privately by both public and private limited companies. It is considered a low-cost and fast mode of raising resources, the issuance cost being low and largely unregulated. Section 67(3) of the Companies Act, 1956, provides for private placements under which the offers for private placements are to be made to investors on a one-to-one basis. In terms of the recently enacted Companies (Amendment) Bill, 2000, any offer of shares or debentures to more than 50 persons will be treated as public issue in the case of public financial institutions and NBFCs.
10.5.7 The RBI publishes data on a yearly basis on resource mobilisation through private placement of securities in its Annual Report on the basis of information collected quarterly from a select set of twenty-one merchant bankers and six Financial Institutions. The coverage of data classified into private and public sector and financial intermediaries and non-financial corporate entities is about 90-95 per cent in terms of resource mobilisation from the private placement market.
10.5.8 There are no legal provisions for the companies, which raise resources on a private placement basis to submit the relevant information to any official agency. Debt instruments such as bonds and debentures issued by non-banking non-financial companies on an ‘unsecured’ basis come under the definition of ‘deposit’ and are subject to the limitations regarding ceiling on quantum and interest rates stipulated by the Department of Company Affairs (DCA) under Section 58A of the Companies Act. Interest rates are however, notified by DCA on the advice of RBI. Secured bonds and debentures are not subject to these regulations. Furthermore, the regulations of SEBI will apply only if bonds and debentures (whether secured or unsecured) are issued by way of ‘public issue’. Thus, privately-placed secured bonds and debentures are currently unregulated, although these come under the broad purview of DCA. However, the laws of the stock exchanges require a listed company to submit its periodical returns on public issue or private placement. SEBI should, therefore, be empowered for collection, compilation and dissemination of data on private placement.
10.5.9 Coverage of data as collected by RBI on private placement reflects 90-95 per cent of the total resource mobilisation. However, detailed data, consisting of classification by instruments, issuer, investors, interest rate, etc. are currently not available.
Conclusions and Recommendations
10.5.10 The Securities and Exchange Board of India (SEBI) is the regulatory authority for the capital market, but private placements are currently not regulated by SEBI. It is understood that SEBI collects, through stock exchanges, full details of privately-placed issues in respect of companies, which are already listed, on the stock exchanges. However, SEBI does not disseminate such information. The Commission recommends that:
The Securities and Exchange Board of India (SEBI), being a regulatory authority, should collect, compile and disseminate data on equity and debt on private placement, as a significant part of private placements are being listed on the stock exchange through subsequent processes. The system of data collection should be urgently formalised by SEBI along with disclosure norms for the private placement market. Pending such formal regulation through further amendments to the Companies Act, SEBI should stipulate certain listing requirements.
The banks, Financial Institutions (FIs) and NBFCs investing in privately-placed issues should periodically furnish details to RBI, such as amount invested, maturity period and credit rating of the instruments, rate of interest, etc. This would help in widening the coverage of data available with RBI for the purpose of processing and maintaining continuity in disseminating data on private placement.
10.5.11 The original sources of data on the secondary market are the stock exchanges themselves. The Stock Exchange, Mumbai (BSE) and National Stock Exchange (NSE) are the two largest stock exchanges in the country. The two widely-used stock market indices are 30-scrip BSE Sensex and 50-Scrip S&PCNX Nifty of NSE. The BSE Sensex (1978-79 = 100) includes scrips, which are a part of the specified group (consisting of 150 scrips), selected on the basis of liquidity, depth, floating-stock-adjusted depth and industry representation. The compilation of the index is based on the ‘weighted aggregates’ method. The price of a component share in the index is weighted by the number of equity shares outstanding so that each scrip influences the index in proportion to its own market importance. The current market value for any particular scrip is obtained by multiplying the price of the share by the number of equity shares outstanding. The index on a day is calculated as the percentage of the aggregate market value of the equity shares of all the companies in the sample on that day to the average market value of the same companies during the base period. This method of compilation has the advantage that it has the necessary flexibility to adjust for price changes caused by various corporate actions. It is a wealth-measuring index where the prices are weighted by market capitalisation. In such an index, the base period values are adjusted for subsequent rights and new issues of equity. The adjustment prevents a distorted picture and gives an idea of wealth creation. Index value in the case of Sensex is computed as follows:
(Current aggregate market value of Sensex scrips/Base year aggregate market value of the Sensex scrips) x 100.
10.5.12 CNX Nifty (3.11.1995 = 1000) comprises 50 stocks and is a market capitalisation weighted index. It also takes into account substitution in the index set and importantly, corporate actions such as stock splits, rights, etc. without affecting the index value. Stocks have been selected based on their market capitalisation and liquidity. All stocks in the index should have market capitalisation greater than Rs.500 crore and should have traded for 85 per cent of the trading days at an impact cost (cost of executing the entire set of S&P CNX Nifty securities) of less than 1.50 per cent. The Index value in the case of Nifty is computed as follows:
(Current aggregate market capitalisation of Nifty scrips/Base year aggregate market capitalisation of the Nifty scrips) x 1000.
10.5.13 Besides, there are other broad-based indices, such as BSE National Index, BSE 200, BSE 500, S&P CNX 500, etc. Some other important stock exchanges such as those of Delhi, Calcutta and Chennai have their own indices. While the data on stock market indices of major stock exchanges are disseminated on-line on a real time basis along with other market-related data on BSE and NSE trading terminals and through various information vendors, data on such aspects as market capitalisation are available only after a time lag of 2-3 weeks. The two largest stock exchanges in the country (BSE and NSE) disseminate data on movements in indices, prices of individual scrips, turnover, market capitalisation, price-earning ratio, etc. through their daily, weekly, monthly and annual publications as well as those published by SEBI and RBI. Besides, data on the secondary market are also published in daily newspapers and other financial journals. Thus the coverage and timeliness of secondary market data are comparable with international best standards.
10.5.14 In recent years, intra-day data has come into prominence in the financial sector and the only consistent framework for information dissemination is by the NSE, which produces an intra-day time-series of prices. The data released by NSE shows a sequence of observations, one per trade, with, (a) time stamp, (b) price, and (c) quantity. The international standard for intra-day information disclosure is the TAQ (Trades and Quotes) data set, which contains the following elements – timestamp, best five prices and quantities available at these prices.
10.5.15 The data on bond market is inadequate as the only information on bond market on a day-to-day basis originates from NSE’s wholesale debt market (WDM). NSE shows the price and quantity for all trades that are registered with NSE.
10.5.16 In India, equity derivatives were introduced recently, in June 2000. Thus, the Sensex Futures Contracts trading began in Bombay Stock Exchange on 9 June 2000 while trading on S & P Nifty Future Contracts began in the National Stock Exchange on 12 June 2000. There are three contracts each, operating on both Sensex Futures and Nifty Futures namely, one-month, two-month and three-month contracts.
10.5.17 Data on trading in Stock Index Futures are made available by the respective stock exchanges and are disseminated on a daily basis with a one-day time lag in financial dailies and with information vendors. Data in respect of the following aspects of derivative trading are presently being made available: Open Value, Close Value, High Value, Low Value, Number of contracts, Number of Trades, Value (in Rs lakh) and the Outstanding Position of the market.
10.5.18 The stock exchanges normally compile and disseminate information about various aspects of trading for the general public, though this is not obligatory. The Securities Contracts (Regulation) Act, 1956 governs the functioning of the stock exchanges in India. The Act empowers the Central Government to regulate the stock market, framing of their byelaws, listing requirements, trading practices, buying and selling contracts, etc. However, with the enactment of the SEBI Act, 1992, powers and authorities vested with the Securities Contract (Regulation) Act 1956 have been transferred to SEBI. It is mandatory for capital market intermediaries registered with SEBI to supply data on a regular basis. Non-compliance attracts penalties. It may be mentioned that according to recent notifications, regulation of the money markets and the Government securities market will continue to be with RBI.
10.5.19 Data on the secondary market disseminated by the Stock Exchanges are timely, adequate and reliable. However, estimates for all-India market capitalisation are not available. Further, no estimates of scope for arbitrage between various stock exchange is available in the country. The Indian stock exchanges are not fully competitive and on occasions, equity price quotations differ as between the NSE and the BSE rather quite noticeably on a daily basis. Though the divergence in the prices of the individual scrips is known, there is no measure of such divergence in a group of scrips. This measure is analytically useful, as it would indicate the extent of arbitraging that is potentially possible as between the two markets.
10.5.20 The intra-day data is prominently absent in the Financial Sector, with the exception of what is released by the NSE.
10.5.21 The trade data on bonds market is not available in the economy and the data on bonds market released by NSE is at best only a sample, as all data are not reported to NSE. Further, the NSE data are also not time-stamped.
Conclusions and Recommendations
10.5.22 Data on the secondary market are reliable, adequate and released on-line by various agencies, implying that timeliness is maintained. However, there are certain data gaps in the availability of this data. The Commission therefore recommends that:
The Securities and Exchange Board of India (SEBI) should provide estimate of an all-India market capitalisation at regular intervals.
SEBI should construct divergence indices for the two main stock exchanges in the country, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), to bring out the extent of arbitraging opportunities that exist after taking into account the cost differences in operating in the two exchanges.
Trades and Quotes (TAQ) data set should become available for all exchange-traded products, such as shares, bonds and derivatives. SEBI should ensure that a standardised data set is obtained and disseminated by each exchange every day.
The reporting of trade data on bonds should be made mandatory by the RBI for Government securities and by SEBI for corporate bonds and that such reporting should take place within the stipulated period. The NSE should ensure time-stamp of the data.
10.5.23 A mutual fund is established in the form of a Trust by a sponsor to raise money by the Trustees through sale of units to the public under various schemes. Data on resource mobilisation by mutual funds are compiled and disseminated by SEBI and RBI. SEBI data as collected and compiled on the basis of returns filed by mutual funds, including UTI, are available with a time lag of six weeks in its Monthly Bulletin, website and Annual Report. SEBI, in its Annual Report, publishes consolidated annual data on mutual funds classified into private sector, public sector, UTI and open-ended or closed-ended schemes. In addition, the SEBI website also disseminates daily transactions of mutual funds (repurchases, sales and net investment) in debt and equity instruments. RBI collects information from individual mutual funds and publishes annual data on net resource mobilisation in the Annual Report, Report on Trend and Progress of Banking in India and Handbook of Statistics on Indian Economy.
10.5.24 Data released by SEBI are reliable and timely and are comparable with the best international practices. However, SEBI data do not provide break-up of resource mobilisation by type or objective of scheme and deployment of resources.
Conclusions and Recommendations
10.5.25 Data released by SEBI on mutual funds are reliable and timely. The primary source of data on mutual funds being SEBI, the Commission recommends that:
The Securities and Exchange Board of India (SEBI) should consider widening the coverage of mutual funds operations to include: (a) Resource mobilisation by individual mutual funds, (b) Deployment of funds by mutual funds, (c) Resource mobilisation by offshore mutual funds, (d) Resource mobilisation by type of schemes (i.e., open-ended or close-ended) and by objective of scheme (i.e., income, growth, balanced, tax-saving), (e) Net resource mobilisation by mutual funds during the month, (f) Ownership of the units of mutual funds, and (g) Liabilities and assets, and income and expenditure accounts of the mutual funds.
Foreign Institutional Investors
10.5.26 Foreign Institutional Investors (FIIs) have been permitted since September 1992 to invest in India in both debt (including Government securities) and equity, subject to a prescribed limit. Data on FIIs are collected by SEBI, RBI and the concerned stock exchanges (BSE, NSE). However, stock exchanges have been prohibited by SEBI from disseminating information to the general public. The data are mainly compiled and disseminated by SEBI on FIIs, based on information furnished by FIIs’ custodians. It is, in fact, obligatory on the part of the FIIs registered with SEBI, to provide information relating to their operations in the Indian capital markets to SEBI and RBI. The FIIs provide data on a daily basis to SEBI on investments in India in debt securities at acquisition price. Data on investments by FIIs, categorised as equity and debt, are made available by SEBI with a time lag of one day on its website and through daily newspapers and information vendors (Reuters). The Annual Report of SEBI also provides annual and month-wise trends in gross purchases, sales, net investment (Rupees and US $) and cumulative investment (US $). The information so released by SEBI is adequate and comparable with international standards.
Capital Market related Institutions
10.5.27 A large number of institutions operate in the capital market either as regulators or the exchanges themselves. A system for consolidation of information in respect of these units needs to be developed.
10.5.28 Some of the categories of funds and institutions for which regular flow of data are not disseminated are: venture capital funds, the Securities and Exchange Board of India (SEBI), the Stock Holding Corporation of India (SHCI), Depositories and Stock Exchanges. The Annual Reports of the SEBI, Stock Exchanges and their monthly and weekly Bulletins do not contain complete details of the working and operations of these funds and institutions.
10.5.29 Information similar to that of mutual funds is also required for venture capital funds. However, no data on venture capital funds are available. The data on working of these funds and institutions are required for items such as total volume of funds and their contribution to National Accounts. Institutions like SEBI, Stock exchanges and other, systematic data on their operations of working, value added, savings, capital formation and stock of capital assets, deposits are not available, at present. There is also a deficiency in information in terms of consolidated data on share brokers and share broking firms in respect of their income, expenditure, volume of transactions and sources and uses of funds. In view of the advancements in the field of information technology, new payment mechanisms like electronic funds transfer, payments through credit or debit cards would be in the market and the volume of such transactions would increase over the period. At present, the statistical system to capture data on such transactions has not been well formulated.
Conclusions and Recommendations
10.5.30 Institutions such as SEBI, stock exchanges and stock-broker firms provide services, but consolidated data on these institutions are not available from any source. The Commission therefore recommends that:
SEBI should be the Central agency for collection and dissemination of data from all institutions that are under its control and jurisdiction.
SEBI should also bring out consolidated data of share-brokers and share-broking firms in the organised sector in respect of their income, expenditure, volume of transactions and sources and uses of funds.
RBI should evolve a statistical system for collection of statistics from institutions for electronic funds transfer, payments through credit or debit cards in the market and the total volume of such transactions.