1 In Bombay stock market circles, the buzzword is 'mega.' At least 40 companies are coming to the capital market to raise $6 billion, an amount never thought possible in India.
2 'When they talk mega-issues, they're truly talking mega,' says S.A. Dave, chairman of the Securities and Exchange Board of India. 'The capital market is booming.'
3 But the mega-issues are raising megaquestions about the rapidly evolving Indian capital market.
4 One is whether there is enough money to fund the new issues without depressing stock trading.
5 Moreover, in the relatively unregulated Indian stock markets, investors frequently don't know what they are getting when they subscribe to an issue.
6 A prospectus in India doesn't always tell a potential investor much.
7 Some of the large amounts are being raised by small firms.
8 In addition, once money is raised, investors usually have no way of knowing how it is spent.
9 Some analysts are concerned that the mega-issues, in such an unregulated environment, could lead to a mega-crash. 'The rate of failures will be much more than the rate of successes in the mega-projects,' says G.S. Patel, a former chairman of the giant, government-run mutual fund, the Unit Trust of India. 'They're going to have mega-problems.'
10 The Indian stock markets have been on a five-year high, with dips and corrections, since Prime Minister Rajiv Gandhi started liberalizing industry.
11 But the last stock market boom, in 1986, seems small compared with the current rush to market.
12 The $6 billion that some 40 companies are looking to raise in the year ending March 31 compares with only $2.7 billion raised on the capital market in the previous fiscal year.
13 In fiscal 1984, before Mr. Gandhi came to power, only $810 million was raised.
14 This year's biggest issue, $570 million of convertible debentures by engineering company Larsen & Toubro Ltd., is the largest in Indian history.
15 And it isn't the only giant issue: together, the top four issues will raise $1.3 billion.
16 Convertible debentures -- bonds that can later be converted into equity shares -- are the most popular instrument this year, though many companies are also selling nonconvertible bonds or equity shares.
17 These mega-issues are being propelled by two factors, economic and political.
18 In the past, the socialist policies of the government strictly limited the size of new steel mills, petrochemical plants, car factories and other industrial concerns to conserve resources and restrict the profits businessmen could make.
19 As a result, industry operated out of small, expensive, highly inefficient industrial units.
20 When Mr. Gandhi came to power, he ushered in new rules for business.
21 He said industry should build plants on the same scale as those outside India and benefit from economies of scale.
22 If the output was too great for the domestic market, he said, companies should export.
23 India's overregulated businessmen had to be persuaded, but they have started to think big.
24 Some of the projects being funded by the new issues are the first fruits of Mr. Gandhi's policy, and they require more capital than the smaller industrial units built in the past.
25 The industrial revolution has produced an explosion in the capital market, which is a far cheaper source of funds than government-controlled banks, where interest rates for prime borrowers are around 16%.
26 The second factor spurring mega-issues is political.
27 Mr. Gandhi has called general elections for November, and many businessmen fear that he and his Congress (I) Party will lose.
28 Some companies are raising money in anticipation of a government less predictable than Mr. Gandhi's, and possibly more restrictive.
29 The buoyant Bombay rumor mill also says that some of the money raised in the current spate of issues will be used as campaign donations before the elections.
30 No one admits to anything, but India's industrialists have a history of making under-the-table campaign donations.
31 So far, the mega-issues are a hit with investors.
32 Earlier this year, Tata Iron & Steel Co. 's offer of $355 million of convertible debentures was oversubscribed.
33 Essar Gujarat Ltd., a marine construction company, had similar success with a slightly smaller issue.
34 Larsen & Toubro started accepting applications for its giant issue earlier this month; bankers and analysts expect it to be oversubscribed.
35 Still to come are big issues by Bindal Agro Chem Ltd., a petrochemical and agrochemical company, and Usha Rectifier Corp. (India), a semiconductor maker.
36 While many investors are selling parts of their portfolios to buy the new issues, prices on India's 16 stock exchanges are holding up so far.
37 'I don't think it will lead to any chaos in the secondary market,' says Mr. Patel, 'only a sagging tendency.' Says M.J. Pherwani, chairman of the Unit Trust of India: The 'markets are headed for growth unheard of and unseen before.'
38 But with growth come growing pains, and never has this been clearer on the Indian capital market than now.
39 In the past, the government controlled the markets indirectly, through its tight grip on industry itself.
40 Various ministries decided the products businessmen could produce and how much; and government-owned banks controlled the financing of projects and monitored whether companies came through on promised plans.
41 The government has been content with this far-reaching, subtle form of control, exercised on a case-by-case basis with no clear rules or guidelines.
42 But now, with large amounts being raised from investors, the government's dawdling on regulation and disclosure requirements has a more dangerous aspect.
43 The Securities and Exchange Board of India was set up earlier this year, along the lines of the U.S. Securities and Exchange Commission, but New Delhi hasn't pushed the legislation to make it operational.
44 Mr. Dave, its head, acts cheery and patient, but he makes no bones about the need to get to work.
45 'Mega or non-mega, we feel the prospectus standards need to be considerably improved,' he says. 'Disclosures are very poor in India.' He says the big questions -- 'Do you really need this much money to put up these investments?
46 Have you told investors what is happening in your sector?
47 What about your track record? -- 'aren't asked of companies coming to market.
48 Instead, he says, most investors have to rely on the rumor-happy Indian press.
49 An example is the biggest offering of them all, Larsen & Toubro's $570 million bond issue.
50 The engineering company was acquired in a takeover earlier this year by the giant Reliance textile group.
51 Although Larsen & Toubro hadn't raised money from the public in 38 years, its new owners frequently raise funds on the local market. (Reliance floated a $357 million petrochemical company in 1988 that was, at the time, the largest public issue in Indian history.) The media has raised questions about Larsen & Toubro's issue, pointing out that it exceeds the company's annual sales and its market capitalization.
52 Even stranger is the case of Usha Rectifier, a semiconductor company with 1988 sales of $28 million that's raising $270 million to build an iron plant.
53 Once the money is raised, it isn't always certain how it is used.
54 Larsen & Toubro, for example, says it's raising $570 million to use as supplier credit on large engineering jobs.
55 Unlike other companies, it hasn't pin-pointed specific projects for the funds.
56 And even when specific projects are described in prospectuses, the money often is used elsewhere, according to analysts.
57 'Someone must monitor where the funds are deployed,' says Mr. Dave.
58 Mr. Patel agrees: 'There is no proper monitoring and screening of the use of these funds.
59 They're trying to plug the various loopholes, but they're totally unprepared for this.'
60 Because of the large amounts of money being raised, the loose disclosure requirements and the casual monitoring of how the money is used, some analysts fear that there could be a few mega-crashes, which could hurt market confidence far more than the small bankruptcies that followed the boom of 1986.
61 The government insists that such a possibility is low.
62 It says that despite loose regulation of the market itself, its longstanding regulation of industry will prevent such crashes.
63 T.T. Ram Mohan contributed to this article.

One is whether there is enough money to fund the new issues without depressing stock trading .
new issues
What are the new issues?