After a busy start to the year, capital markets saw a substantial slowdown in the second half of 2018, though SEBI continued to play a significant role in improving the regulatory framework and encouraging a stable and safe capital markets regime India. This update summarises some of the key developments in the past year and gives a brief overview of what can be expected in 2019.

THE YEAR THAT WAS

The year 2018 was an eventful year for the Indian capital markets.  The first half of the year saw the primary markets maintain its momentum from last year with growth in volume of funds raised as well as transactions.  Companies that came out of initial public offerings (IPOs) in 2018 include Bandhan Bank, Hindustan Aeronautics, ICICI Securities, HDFC AMC etc.

The second half of the year, on the other hand, witnessed a substantial slowdown in capital markets transactions due to a number of factors including changes in the economic scenario of the country, financial scams such as the Nirav Modi fraud case, state assembly election results, regulatory changes, external factors such as US- China trade war and fluctuating crude oil prices.

Nevertheless, even in turbulent times, Indian capital markets have often emerged as stable, safe and sustainable of all emerging markets.  In this regard Securities and Exchange Board of India (SEBI) has played an important role in building a strong and robust capital markets and has made strides towards strengthening and improving the regulatory framework, which is likely to have a positive impact.

MAJOR DEVELOPMENTS IN 2018

1.  SEBI notifies new regulations for public issues

In in its effort to ease the process of public issues, SEBI has taken a significant step by replacing the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 with the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations 2018).  Besides alignment with the Companies Act, 2013, SEBI has rationalised the disclosure requirement to a large extent.  Key changes, inter alia, include financial information to be provided for a period of three years instead of five, threshold for identifying promoter group increased from 10% to 20%, criteria for identification of group companies, etc.

2.  Roadmap to a shorter listing period in public issues

SEBI has over a period reduced the timeline for listing in public issues from 12 working days to 6 working days from the date of closure of an issue.  In a recent circular, it has laid down the roadmap for further shortening this timeline to 3 working days from the date of closure of an issue, which is to be implemented in a phased manner.  This will not only make Indian primary markets more competitive but will also help in bringing standards in Indian capital markets at par with those of more developed economies.  Through this circular SEBI has permitted unified payment interface (UPI) to be used as a payment mechanism for making bids in public issues in addition to the existing application supported by blocked amount (ASBA).

3.  Amendments to REITs and InvITs regulations to make them more attractive

To further facilitate the growth of real estate investment trusts (REIT) and infrastructure investment trusts (InvIT), SEBI has amended their regulations to rationalise and ease the process of public issue of units of REITs and InvITs.

One key change introduced is that in case of an IPO, the manager on behalf of the REIT or InvIT is now required to announce the floor price or price band, at least two working days prior to the opening of the bid.  The earlier regulations stipulated such announcements to be made at least five working days prior to the opening of the bid in case of an IPO.  Further, these trusts can only accept bids through ASBA.

4.  Framework for enhanced market borrowings by large corporates

To enhance the corporate bond market in India, SEBI issued a circular requiring large corporates to raise 25% of their borrowings through the bond market.  This requirement has been made effective from 1 April 2019 (for entities following April- March financial year) and 1 January 2020 (for entities following calendar year as their financial year).  This is part of SEBI's efforts to reduce reliance on the banking system for financing large corporates and simultaneously developing a liquid and vibrant corporate bond market in India.

LOOKING AHEAD

The year 2019 is the year for general elections in India.  It will be interesting to see how the markets react to the outcome of the general elections scheduled to be held in May 2019.  Forecasts for 2019 indicate an increase in GDP growth numbers which, coupled with India's steady climb up the World Bank's Ease of Doing Business rankings and softening crude oil prices should support a positive outlook for capital markets 2019.

On the regulatory side, there could be a significant change allowing equity shares (and not just depository receipts) of Indian companies to list outside India without having to simultaneously list in India, and for equity shares (and not just depository receipts) of foreign companies to list in India.  This could create new opportunities for both Indian companies and investors.