COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES

Mutual funds not doing well, says RBI report

The performance of the mutual funds during 1997-98 was not very encouraging in terms of the total funds mobilised by them due to the depressed secondary market conditions, says the Reserve Bank of India in its annual report.

During 1997-98, seven Euro-issues were floated by the Indian corporates for Rs 40.09 billion as against Rs 55.94 billion raised through 16 issues during the previous year.

Unit Trust of India, however, mobilised Rs 21.19 billion in 1997-98 as against a reverse flow of funds of Rs 30.43 billion in 1996-97 attributable to the bunching up of redemption of several close-ended schemes, the report said.

The capital market exhibited subdued conditions during 1997-98. The primary market remained depressed throughout the year due to cautious attitude of both investors and corporates, while the secondary market occasionally witnessed brief and unsustained spells of buoyancy.

The major factors contributing to the dull capital market conditions were the reduced demand for funds from corporates, lack of investor support and increased recourse to the private placement market which enabled corporates to raise sizeable funds, the report added.

The aggregate new capital issues floated through prospectus and rights by the government companies, non-government public limited companies, public sector undertakings, banks and financial institutions (in the public sector) declined considerably by 69.9 per cent to Rs 46.57 billion from Rs 154.76 billion in 1996-97.

In view of the subdued new issues market, the private placement market continued to flourish during 1997-98 with corporate entities raising substantial resources essentially through fixed income securities.

During 1997-98, banks, financial institutions and public and private sector companies mobilised Rs 270.69 billion through this route, accounting for Rs 85.3 per cent of total resource mobilisation (Rs 317.26 billion) as compared with Rs 150.66 billion (49.3 per cent of resource mobilisation of Rs 305.42 billion during 1996-97.

Referring to the stock market's performance, the RBI said that after witnessing prolonged bearish conditions since July 1996, share prices staged a recovery in the first four months of 1997-98 due to higher order of investment by foreign institutional investors coupled with some favourable proposals in the Union Budget 1997-98.

However, the recovery proved short-lived as subdued conditions set in during August 1997 to mid-February1998 reflecting, inter alia, a slowdown in industrial production and near-absence of active interest by the FIIs in the secondary market in the wake of the South-East Asian currency crisis.

The stock market staged a smart recovery during February to March 1998 on account of renewed investment interest by the FIIs and expectations of a favourable Budget.

During 1997-98, net investment by the FIIs declined by 20 per cent to Rs 59.94 billion from Rs 74.92 billion during the previous year.

UNI