30 years of liberalization: Reminiscing landmark market reforms with MF veteran A Balasubramanian

Money management veteran A Balasubramanian, MD & CEO of Aditya Birla Sun Life mutual fund, has been with the group for nearly 27 years. When economic liberalization in India started in 1991, he worked for GIC Mutual Fund. GIC MF was eventually acquired by Canara mutual fund (Robeco came in later). Private sector mutual funds started in 1993.

The arduous task of collecting stock information

Balasubramanian recollects that it was difficult to do research because information was not easily available. “A sneak peek into the Press Trust of India terminal for stock prices was a privilege. Buying a bhavcopy (a publication available outside the Bombay Stock exchange that gave share prices of all listed companies in those days) in the evening and another similar, but weekly publication, was the source of information,” says Balasubramanian. Someone who was good at gathering information was the king in the market, he adds.

Market reforms

But no sooner than the reforms started, and cheered the stock markets, the Harshad Mehta stock market scam followed. Balasubramanian says that the 1992 scam paved the way for financial markets reform. Before the introduction of electronic trading backed by demat securities, it was an open-outcry system and the settlement was manual and fraught with operational risks. It used to take long – sometimes even months – for the receipt of stock certificate in your name if you bought shares or the money due if you sold stocks. There was no transparency.

“The portfolio manager used to give the order to buy or sell securities to trader. The trader used to give the order to the floor trader, and floor trader used to give it to the broker who used to act as a market maker and run a ‘sauda book’. The sauda book used to get registered with the exchange. There used to be big spreads (difference between buy and sell prices) and sometimes we used to come to know about the rates at which the trade went through after two days,” says Balasubramanian.

Technology brings ease of trading

Electronic trading using a demat account made the functioning of the stock market transparent. Regulators allowed simultaneous trading in both physical and demat format in the initial days. They also allowed the facility of re-materialization (converting from demat to physical certificate), which boosted the investors’ confidence in the financial markets, before making it mandatory to trade in demat format.

Even debt markets were plagued by lack of transparency.

Bond market reforms

Even debt markets were getting reformed. Setting up of the Clearing Corporation of India and ensuring guaranteed settlement was a game changer for bond markets in India. Balasubramanian also remembers the introduction of commercial papers that eventually replaced inter-corporate deposits and bill discounting. These were the ways through which companies raised money to fund their short-term needs earlier.

Today, fund managers have sophisticated software on their computers that pull out companies’ entire annual reports, and tell them within minutes if the companies are healthy financially. But in those days, Balasubramanian recollects, they got annual reports after weeks or months. But, over time, the capital market regulator, Securities Exchange Board of India (SEBI), made it mandatory for listed corporates to share information at regular intervals. And not just when they wanted to raise equity, but also debt.

Balasubramanian, was also the chairman of the MF industry’s trade body, AMFI, between 2016 and 2018. He says that AMFI has worked closely with SEBI over a period of time “to make mutual funds more transparent and efficient.”