In a bid to spur retail participation in the country, the Government is working on a major capital market reforms, including tax incentives, a senior finance ministry official said. The reforms, which are likely to be included in the Budget for 2015-16 (Apr-Mar), are being planned primarily to enhance retail participation in initial public offers and follow-on public offers, the official said.
Despite the BSE Sensex and NSE Nifty climbing new peak in 2014-15, only a few companies have hit the IPO market. Only five companies have raised funds through IPOs so far in 2014-15. “last year’s Budget announcements evoked poor response as they either lacked tax clarity or did not give enough tax incentives to investors,” the official said.
Market experts believe that the companies are hesitating because they are not sure if investors have an appetite for IPOs. Though the broader market has rallied, investors are still sceptical. Experts feel that the investors are waiting for actual change on the ground and the companies know this. All the capital market proposals, which are under works, will be discussed with the market regulator, the Securities and Exchange Board of India. Finance Minister Arun Jaitley also met various market participants as part of the pre-Budget consultations last week.
The capital markets division of the finance ministry has sent the Budget proposals to the Central Board of Direct Taxes for its views on the tax incentives, the official said. SEBI had proposed to ease the rules on fast tracking follow-on public offer or rights issue of companies. In a discussion paper, SEBI proposed to lower the minimum market capitalisation of public shareholding in companies to 2.5 billion rupees from current 30 billion rupees for accessing the fast track route.
A fast track issue is one where the companies can open the issue directly after filing the red herring prospectus without filing the draft offer document. Citing poor response to Real Estate Investment Trusts (REIT), the official said the ministry is carefully examining each and every proposal.”look at what happened with REITs. Till date, there isn’t a single REIT that is registered simply because there is no tax benefit on the scheme. Why should anyone invest in these instrumentsIJ” said the official. Jaitley had announced the introduction of REITs and Infrastructure Investment Trusts in the last Budget.