The Bombay Stock Exchange 30-share blue chip sensitive index, the SENSEX, reacted negatively to yesterday's remarks by SEBI on participatory notes (P-Notes).
P-Notes are an offshore derivative instrument (ODI) wherein an overseas investor can invest in India without having to register himself as a Foreign Institutional Investor (FII). This technique has brought in billions of dollars and has fueled the bullishness in both the Derivate as well as the Currency markets. The rupee has been rising to decade highs.
Speaking at the Hindustan Times Leadership Summit, Finance Minister P Chidambaram had said that the rupee was too strong for any sort of comfort. This "urgent" move by SEBI seems to be a corollary of this.
SEBI has not banned P-Notes altogether though it seeks to put a cap on them. It has given the industry 4-days for any feedback.
In light of all this, the SENSEX fell over 1,700 points at the very start of trade. Since so many stocks hit the lower circuit, trading was halted for an hour on the BSE and the NSE. The last time I had seen this was back in April-May last year, when the index had fallen by over 1,100 points in a few minutes. Like the last time, the FM intervened and clarified that capital inflow would not by any means be stopped.
An executive of DSPML clarified to NDTV Profit that the industry was aware that the proposals on P-Notes, if made law, would be negative in the short run but highly positive in the long run.
The BJP spread their propaganda.