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Privatisation, remedy for stock market drought

India's equity markets, suffering a liquidity crunch, could benefit from privatisations but flaws in the process like arbitrary rules on foreign ownership limits and the ability of state firms to buy control must be addressed, experts said on Wednesday.

"The (private sector undertakings) PSU market represents the greatest opportunity to revive capital markets," Roddy Sale, a consultant formerly managing director of JP Morgan's Indian operation, told a Bombay Stock Exchange seminar.

There are nearly 10,000 listed companies in India but just 10 stocks account for almost half of turnover and the top 50 companies by market capitalisation accounted for 81 per cent of turnover by value last year, Manoj Vaish, the BSE's deputy executive director, said.

Last month, only one in five of the BSE-listed stocks traded even once, Vaish said, down from one in three a year ago.

And a sharp cut in India's weightage in Morgan Stanley Capital International's index to 3.5 per cent from six per cent, will mean global funds cutting back on investments which track this benchmark.

"Foreign investors are extremely concerned about liquidity, and there are few truly liquid Indian scrips," Sale said.

RESPECTABILITY

Sale said the sale last year of a 51 per cent stake in Bharat Aluminium Company Ltd to Sterlite Industries was a watershed.

"It necessitated the government to face controversy and win," he said, adding victory unchained the long-stalled drive to sell off government assets by giving the process respectability.

New Delhi has since raffled off stakes in international phone giant Videsh Sanchar Nigam Ltd, Indian Petrochemicals Corp Ltd, and refiner IBP Co Ltd.

Earlier this month the government agreed on terms for ceding control over the country's largest car maker Maruti Udyog Ltd to joint venture partner Suzuki Motor Co of Japan, prior to an initial public offering.

Also on the block are controlling stakes in Shipping Corporation of India Ltd, India's largest shipping line, National Aluminium Company, the largest alumina maker in Asia, and in two big oil refiners -- Hindustan Petroleum Corporation Ltd and Bharat Petroleum Corporation Ltd.

FLAWED PROCESS

But Sale said there were flaws which needed to be addressed, saying restrictions sometimes placed on the size of holdings foreigners can buy were "arbitrary" and "without any very clear purpose."

In addition, India currently lacks a policy or legislation spelling out antitrust or monopoly restrictions for bids.

Indian Oil Corporation won the bidding for IBP with a price double that of nearest rival Shell, suggesting it was less constrained by market values, Sale said.

IOC is the country's largest oil distributor with IBP one of only three others in India.

And if IOC were able to bid for BPCL or HPCL, it would increase its petrol station market share to 75 per cent from 50 per cent.

That would deter any other major player from entering the market, Sale said.

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