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Package for revival of Indian indusrty.
The package to be implemented in the next two months takes care of the major grievances of different sectors. For the capital market it is in the form of permission to Indian corporate to buy back their shares. The government is now planning to permit companies to buy back shares within the prudential guidelines set by the Securities and Exchange Board of India (SEBI) in order to enhance the value to investors Permission to buy back shares has been a demand from the major players of the stock market in the country. The Indian stock market, though far better than counterparts in other south east Asian countries, has not been good shape. The permission to buy back is supposed to boost the stock index and the morale. Opening up of the Indian insurance to foreign companies is an ongoing issue for the past few years. Finally the government seems to have taken a decision allowing foreign companies to take up minority stakes in the domestic insurance sector. The details of the same are to be announced soon. On the infrastructure front there is a national road project involving an outlay of Rs. 28,000 crores. Other things promised are a new telecom policy, faster environment clearances for projects, global bidding for oil exploration within two months and a blanket clearance for inter-corporate investments. Currently, a company wanting to make inter-corporate investments in the form of loans and investments in equity has to seek government approval for exceeding thirty per cent of its equity and free reserves. Since most companies have already exceeded this limit, government approvals for inter-corporate investments are the norm rather than the exception. Though the permission to buy back shares is publicized as a major step to boost up the capital market the real impact of it is difficult to predict. Indian condition is not comparable to industrially advanced nations. There buyback may be useful as the companies have surplus cash and not much capital expenditure. In the Indian condition finance is not all that easily available. Here when the companies often spend a good amount of their energy to raise fund, it may not be logical to buyback the shares using the funds they have. Even buying back shares with borrowed funds is ruled out as companies that are quoting below their book value tend to have low return on equity and return on networth. So, if a company borrows funds at 16 per cent and is able to generate only 12 per cent, its profitability will naturally be eroded. Go To Page: 1 2
The copyright of the article Package for revival of Indian indusrty. in Business in India is owned by Sebastian Dominic. Permission to republish Package for revival of Indian indusrty. in print or online must be granted by the author in writing.
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