• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest
• The New Manager

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Mr M. Damodaran, Chairman, SEBI.

Jayanta Mallick

Kolkata, Oct. 23 SEBI’s proposed initiative on participatory notes is not an attempt to kill two birds with one stone, just one bird. Mr M. Damodaran, SEBI Chairman, made it amply clear on Monday that capital control was not in SEBI’s domain.

The equities market regulator also made it clear that it was not trying to restrict the quantity of overseas fund flow into Indian equities. It is only concerned about the quality of inflows — from unknown and unregulated foreign entities.

The recent surge in volume of inflow through the PNs is relevant as an example only to the extent of underlining the uses of the conduit.

SEBI is apprehensive, understandably so, that the nature of this flow is essentially short-term, and hence can distort the normal price discovery mechanism.

The sheer weight of such “hot” or speculative and leveraged inflow can have a destabilising effect in terms of valuation of the equities.

If this money flows in thick and fast, it can flow out too in double-quick time. This is the game played by the short-only hedge funds — the absolute return seekers.

They stay unregulated in all regulatory regimes and across asset classes.

Interestingly, the Indian regulator may go down in history for trying to take the first step to rein-in the hedge funds and their pet derivative instruments.

The North Block and the RBI, have, of course, been suffering from surplus dollar flow from various channels including the portfolio routes.

But, SEBI has stopped short of suggesting an indirect control of inflow through banning participatory notes.

Its resistance to a blanket ban, demanded by RBI for long, cannot be faulted.

After all, the Union Finance Ministry and the central bank are the appropriate authorities to decide on the quantum of overseas capital inflow and its impact on the currency and the economy.

Mr P. Chidambaram and Dr Y.V. Reddy, perhaps, have to find out other means to control the dollar inflow — but not through banning-of-PN route, at least as of now.

More Stories on : Foreign Institutional Investors | Regulatory Bodies & Rulings

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Arabian Sea storm may divert flows

Copyright © 2007, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line