Equity prices in general registered receding trend during the major part of the financial year, 1998-99. On point to point basis, BSE 30 stocks sensitive index (Sensex) decelerated from 3892.75 as on March 31, 1998 to 3739.96 as on March 31, 1999, recording a decrease of 152.79 points or 3.92 per cent. The BSE 100 (Natex) had a fall of 45.77 points (-2.69 per cent) from 1697.14 to 1651.37 followed by S&P CNX Nifty registering a fall of 38.85 points or 3.47 per cent from 1116.92 to 1078.05. The Crisil Index with 500 scrips recorded a rise of 42.71 points (5.96 per cent) from 715.54 to 758.25 (Table 2.14). The detailed analysis of movement of indices provide more interesting reading of developments in Indian stocks market. The share prices remained on an optimistic note in April 1999. The BSE Sensex firmed up to 4280.69 on April 21, 1998 and thereafter declined under the pressure of impending sanctions following India’s nuclear test and recurrence of turmoil in international stocks and currency markets. Exchange rate instability was also crucial factor. The rupee was volatile for sometime and the exchange rate fell sharply on a few occasions in 1998, in turn affecting the market sentiments and inhibiting fresh FIIs inflows. The FIIs inflows were negative for many months during 1998-99 on account of the East Asian Crisis.

The news about the financial status of US-64 Scheme and Unit Trust of India seriously affected the market sentiments and contributed to the nervousness of the market for quite sometime. Because of this, UTI, which used to be a counter forces against the FIIs ceased to play such a role in the market. This development enhanced the impact of the FIIs trades on the Indian capital market.

The heavy selling by the FIIs during May and June 1998. This was a direct fall out of the reasons given above. The markets appeared to stablise after this but the international developments in the emerging markets once again exacerbated the funds outflow from the these economies.

All these negative developments kept market under pressure of sales and as a result BSE Sensex fell to 2810.66 on November 30, 1998 and further to 2804.03 on December 1, 1998. The S&P CNX Nifty and Jr. Nifty reflected the same downward movements. All stocks indices demonstrated bearish and gloomy performance during October to December 1998. The market began to recover during the last week of December 1998 on the support of FIIs and expectations for budgetary incentives for capital market and touched the highest of the year at 3784.11 on March 09,1999.

On a monthly average basis, BSE Sensex has shown a decline of 607.18 points or 15.2 per cent during 1998-99. The monthly average Sensex declined from 4006.81 in April 1998 to 2810.66 in November 1998, a fall of 42.6 per cent, but showed a rising trend thereafter finally reaching 3399.63 in February 1999. The Sensex showed uptrend throughout the month of March 1999 closing at 3739.96 at end March 1999. Monthly average for March 1999 was at 3784.11 (Table 2.15).

The S&P CNX Nifty which averaged 1159.35 for April 1998 climbed down to 817.75 by November 1998, registering a fall of 41.8 per cent. The index began to recover during the following months and touched 1078.05 during March 1999. Thus over the year of 1998-99, the monthly average of S&P CNX Nifty declined by only 7.5 per cent (March 1999 over April 1998). The BSE Natex which averaged 1760.96 for April 1998 persistently declined and reached as low as 1254.10 in November 1998 but improved to 1659.63 in March 1999, shedding 101 points (Table 2.15).


The firming up trend in the stocks prices in March 1999 was probably the result of optimistic perceptions of the market due to positive budget proposals like exemption of income of unit holder from income tax received from UTI as well as other mutual funds and exemption of dividend from income tax in the hands of investors in case of investment in US 64 scheme of UTI and other open ended mutual funds schemes provided such mutual funds invested more than 50 per cent in equity shares. Capital gains tax reduction from 20 per cent to 10 per cent also added bullish sentiments to the market. The Reserve Bank of India’s announcement of reduction in cash reserve ratio and Bank Rate and downward movement in deposit rates of commercial banks further added to bullish sentiments in the market by way of augmenting liquidity in the market.

Other factors which assisted the market in improving its performance particularly, from December 1998, include reversal of outflow of FIIs to positive net inflows, exchange rate stability, some increase in liquidity in the financial system compared to previous year, increased anti volatility measures, transparency measures and growing process of dematerialisation including better settlement system guided by the SEBI. The rapid process of dematerialisation of shares has been attracting FIIs investment (Table 2.15).