Allowing foreign firms to trade in secondary market opposed

November 14th, 2008 - 7:21 pm ICT by IANS  

New Delhi, Nov 14 (IANS) Allowing foreign companies to trade in the Indian stock markets could lead to hostile takeovers, an industry lobby said here Friday.”Such a move would mean doing away with the requirement of the foreign partner to seek permission from the Indian promoter before enhancing its stake in the joint venture will go against the interest of the domestic companies and make them vulnerable to hostile take-over,” PHD Chamber of Commerce and Industry (PHDCCI) said in a statement.

The chamber said if the proposal was ratified, there was every possibility of foreign companies acting in concert with foreign institutional investors (FIIs) to de-stabilize existing managements.

“There are many such examples globally leading to hostile takeover and change of managements not dictated by genuine business reasons. It is very difficult, at times, to prove the fact of ‘acting in concert’ in a court of law or by a regulatory body,” it said.

According to the current rules, only FIIs can buy and trade stock in the secondary market.

The government is considering allowing foreign companies, apart from FIIs, to trade in Indian bourses in order to infuse liquidity and capital flow.

“Measures such as these, instead of reviving investor sentiment, would only aggravate volatility in the marketplace,” PHDCCI said.

The chamber blamed the rapid withdrawal of FIIs in recent times for the bear run gripping the securities market.

“The present stock market crisis in India is essentially the result of the sale of equity by FIIs, which by withdrawing an estimated $21 billion in the last six months from India have created a severe liquidity crunch in the market,” it said.

PHDCCI suggested that instead of allowing foreign companies to invest in stock market, the government should consider the creation of a sovereign fund.

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