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Deferment of badla ban a blessing in disguise

Ashok Jainani

DIRECTIONLESS, listless, lacklustre and rangebound is the way equity markets are likely to be in the next week. The silver lining currently, as it appears to be, is that the markets regulator has deferred, for the time being, its proposal to abolish badl a (carry forward) trading in equities.

This might buoy the trading sentiment as the new settlement begins on Monday on the Bombay Stock Exchange (BSE) and see stocks rising on hopes that the regulator might drop its proposal, considered as ``deathknell'' for the markets, altogether. And the r ipple rally of the bear market might be led by the momentum stocks which would be used by the smart traders to get out, seasoned brokers and dealers said.

There are speculations with regard to the proposed ban or continuation of badla trading in the market which had been influencing the traders' mood over the last week. The Securities and Exchange Board of India (SEBI) board, which was expected to meet o n Saturday, May 5, to consider banning carry forward, deferred till May 14 it decision to do so.

It is feared that trading volumes, already down nearly 80 per cent from March peak following restrictions on short selling, might dry up further with the ban on badla, which will completely remove trading and speculative spirit necessary for the stock m arkets. A SEBI committee has proposed (yet to be decided by the SEBI board) abolition of carry forward facilities, such as ALBM, BLESS and MCFS, with effect from July 2. In its place, SEBI plans to introduce other products such as stock-specific options.

The benchmark BSE-30 shares sensitive index (Sensex) gained about 3 per cent last week (ended May 5) as against losing nearly 4.5 per cent the previous week following recommendation by the committee of the markets regulator proposing a ban on badla.

The foreign institutional investors (FIIs) were rather aggressive buyers, largely in momentum counters with gross purchases of Rs 525 crore, gross sales of Rs 397 crore and net purchases of over Rs 128 crore during the first week of the month.

According to Mr Hemant Majethia, Director, Ventura Securities, equities might gain initially in the week ahead only to attract selling at higher levels by operators who still have long positions and institutions, notably, Unit Trust of India (UTI) to boo k profits. ``On the downside, prices may not go down much,'' technical experts said.

The outstanding long positions on two major stock exchanges aggregate about Rs 1,400 crore in value but quantities (of shares) remain large. The positions have come down over the last few weeks as a result of decline in values. ``So, each rise will be us ed by the operators to square up,'' Mr Majethia says.

After being in hibernation for nearly a month, it appeared that the day traders had made a reappearance as markets moved in a narrow range, dealers said. Hike in margins imposed on market heavyweights -- Reliance Industries and Infosys Technologie s -- as these went into no-delivery period, might also affect trading at the two counters, dealers said.

The margins on both have been increased from 15 per cent to 42.5 per cent by the stock exchange.