The depressed conditions in the primary market persisted in December 1998 reflecting continued investment pessimism. Though for the financial year 1998-99 as a whole resource mobilisation through the public and rights issues from the primary market was 27 per cent higher compared with the same period last year, the rise is somewhat misleading and does not signal a revival of the primary market. For instance, 83 per cent of the capital mobilised during the year was on account of the two development financial institutions, IDBI and ICICI. There were only few manufacturing companies, which entered the market. Secondly, these institutions raised the capital through long-term bond issues made at a high premium. To the extent these institutions add to finance new projects or modernisation and diversification plans of existing units, the capital mobilised would aid new asset formation and to the extent the resources are used for repayment of existing loans, there would only be a substitution effect without any new capital formation. Interestingly one existing issue made by a software company at a high premium was three times oversubscribed signaling that investors are not yet completely risk averse, provided the investments met their return expectations. With the prevailing high real interest rates coupled with Government borrowings taking place at rates around 13 per cent have resulted in high coupon rates of the bond issues made by the institutions under these conditions. Expectedly investors have exhibited a skewed preference for perceived safety and return available in bonds, fixed income securities, small savings and bank deposits. These accounts for the continuous growth in investment in bank deposits (at around 19 per cent this year), small savings, preponderance of income schemes by mutual funds and the stream of bond and debenture issues. This trend is reflected in the primary placement market. As SEBI does not regulate private placement, data available from RBI and other sources indicate that private placement is only being made through debt issues and larger amount of resources have been mobilised through this route than through public and right issues.
 
 

The mutual funds have also been raising far larger resources from the primary market since the introduction of the new mutual funds regulations in 1996 and has continued further. In 1998-99 (April-November) the mutual funds raised Rs.16602 crore through 32 schemes of which
 
 

It is to be seen whether the borrowings of the postal savings rate by the Government is interpreted by the market as a signal of the intervention of the Government and RBI to lower risk free rate of return. To that extent there would be a positive report in the equity markets.