The Prime Minister's stock exchange visit

By C. R. L. Narasimhan

The Prime Minister's visit to the Bombay Stock Exchange (BSE) on its 125th anniversary is memorable even though in his customary speech he did not say anything new. There were no "market- boosting" announcements. Probably they were not possible even though a few relatively innocuous policy type statements were expected. The real significance is therefore in its symbolism: that for the first time an Indian Prime Minister should make an official visit to any stock exchange and that too to the Bombay Stock Exchange. As everyone knows, for all their hype Indian stock markets have not been given the importance they deserved. Even more relevantly, the BSE, perhaps because of due to its size and long innings, has been responsible for a disproportionately large share of stock market controversies.

The official economic policy establishment - represented by the Government, the Reserve Bank of India and (more recently) the Securities and Exchange Board of India - has always had an uneasy kind of coexistence with the stock exchanges. While the latter have always been an integral part of policy formulation and execution, outwardly at least there has never been evidence of a bonhomie or camaraderie between them. Commercial banks have had a tradition of keeping away from the stock markets. Recent official proddings of banks to invest in stocks have not borne fruit. The BSE might have hosted the American President Mr. Bill Clinton, but getting Mr. Vajpayee to preside over its 125th year celebrations somehow seems more exciting as well as portentous.

Stock exchanges not mainstream

For a few understandable and for some entirely unjustified reasons the stock exchanges and particularly the business of stock-broking have not been given the attention they deserved from the Indian policy makers. One principal cause has been the mistaken identification of share-broking with stock exchange operation. In fact the former is only a small, if visible, part of the latter. But because the stock exchange administrators were been colourless and the broker community infinitely more powerful and articulate, the perception that the brokers alone mattered gained ground. (The honourable exception has been the NSE which in any case was meant to be different).

Even today the BSE's president and vice-president are far more visible than the executive director, who, unlike the former, is a professional. This is not an irreverent piece of information. It reinforces the view that India's premier exchange is run by brokers. When the Prime Minister said that stock markets cannot be a closed club of a small group of participants, he was probably referring to the major institutional players - FIIs and others - who are dictating the stock prices. But his comment could well be interpreted to mean that other capital market intermediaries (besides the brokers) and of course the stock exchange administrators should be more visible to the public at large.

Stock-broking has come under attack from two different sides. On the one hand, a few brokers have let down their peers. The damage has been colossal and is not just in terms of rupees. For instance, after the securities scam of the early Nineties the image of the broking community took a severe beating although admittedly only a few brokers were culpable. The JPC Report alone damaged the brokers' reputation (as it indeed wreaked havoc on a majority of banks). Brokers would never be the same again.

The technology-led changes that are sweeping the financial sector have posed the second type of threat to the old style brokers. Most of them have had to change their style of operation and enlarge their activities to stay in place. There is no doubt that the traditional brokers are a vanishing species. Public recognition of them is still on a low key. In the latter part of the Nineties too some brokers of the BSE have been involved in price-fixing and other shenanigans. The stock exchange administration has not been adept at reining in the errant brokers. For the sake of the BSE's image at least if not for anything else it should be seen as being run by professionals instead of by brokers.

The Prime Minister's visit will boost the BSE's image. As for tangible long term benefits, one has to wait and see. The final test of success will lie in convincing the small investors that they too have a place in the stock markets' scheme. It is this trust that the stock exchanges have to earn. It will not come about merely by refurbishing their images through high profile visits.

The BSE might have hosted the American President,

Mr. Bill Clinton, but getting the Indian Prime Minister, Mr. Vajpayee, to preside over its 125th year somehow seems more exciting as well as portentous.

Send this article to Friends by E-Mail

Section  : Business
Previous : Undertone steady on Lyons Range
Next     : IOC offers to buy entire Govt. stake in IBP