Market honcho proposes SWF to boost equity investment

Tags: Banking
Can the creation of a sovereign wealth fund (SWF) by the Indian government, which will buy stocks listed on domestic exchanges, shore up confidence of local investors? It can, or so feels Gagan Randev, CEO of Religare Securities.

Speaking at a Ficci conference on capital markets, Randev suggested that corpus of the SWF could be the securities transaction tax (STT) and capital gains tax collected by the government from investors.

The bull run in the Indian market ensured that the Union government’s collection from STT increased to Rs 8,576.07 crore in financial year 2007-08 from just Rs 585.50 crore in financial year 2004-05. STT collections for financial year 2008-09 was Rs 5,500 crore.

Randev said just like the RBI, which intervenes to stem wild appreciation (or depreciation) in the rupee, a SWF can buy stocks in a big way till such time investor confidence returns.

He said there was a constant need to educate investors about the long-term benefits of investing in equities, given the dwindling retail participation in Indian equity markets.

“Household financial savings in India are driven by deposits and insurance and only 8 per cent of the savings comes in the capital markets,” he said, adding that other financial tools comprising gold ETFs, real estate investment plans and fixed income products have failed to take off despite being in existence for a long time.

Anup Bagchi, managing director and chief executive officer at ICICI Securities, said ETFs and structured or hybrid products should get more prominence in the market for achieving decent returns rather than focusing on individual stocks that can take a beating due to weak market sentiments.

Retail participation in broader equity market can also be increased through the new pension scheme (NPS) products, said Ashu Suyash, MD and country head, Fidelity Fund Management.

“Opening up NPS to invest in equity markets will provide more impetus to the market, as it will increase wider investor participation,” Suyash said.

Putting weight behind investor education, Tarun Bhatia, director of capital markets at Crisil Research, said volatility has gone up considerably and market players have failed to sell India’s long-term growth story to investors.



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