Market may smile on SEBI booster
Mumbai: Last week, the stock market regulator sought to give an impression that all is quiet on the FII front. The Securities and Exchange Board of India issued a statement after expiry of the October F&O contracts clarifying that the data (till September 30, 2003) available with SEBI "do not warrant or support any inference that NRIs have contributed a substantial percentage of the outstanding FII investment". The market regulator described the reports that around 40 per cent of the FII investment was by NRIs as "conjectural".

Most importantly, the SEBI said 12 FIIs, who had issued participatory notes (outstanding as on September 30) confirmed that they or their associates or clients, had not issued PNs to NRIs to overseas corporate bodies, either directly or indirectly. This clarification has provided a relief to the investing community and the sharp rise in prices on Friday could largely be attributed to the removal of a growing suspicion that a NRI-OCB nexus was again at play in the garb of FII flow. SEBI has also conceded that the total value of underlying investment in 200 equities through PNs till September 30 was Rs 19,125 crore.

The clarification by SEBI also marks a welcome departure from its past practice of monitoring the investments by OCBs and use of PNs and sub-accounts. The previous SEBI chairman was on record deposing before the Joint Parliamentary Committee probing the securities scam, which surfaced in March 2001, that "OCBs are not our babies". On the other hand, the RBI representative had told the JPC that: "It (an OCB) is not under our regulatory framework, nor is it under a regulatory framework of a recognised foreign regulator". For the record, OCBs include overseas companies, partnership firms, trusts, societies and other corporate bodies owned either directly or indirectly to the extent of at least 60 per cent by NRIs.

The concern for domestic market is that the virtually unregulated OCBs had an important role in rigging the prices in 2000-01. This time around, SEBI has stated that as on September 30, 2003, 84 per cent of the total net overseas investment of Rs 72,965 crore came through registered FIIs such as MFs, AMCs, investment companies, banks and pension funds. But, the regulator is silent about the exact quantum of current OCB investments. From the SEBI clarification it is also not clear whether it is monitoring OCB investment and use of PNs and sub-accounts on an on-going basis. However, the assurance that the market was relatively safe from manipulation will go down well for the sentiment in the near term. After all, one buys and sells stocks in a market based on perception of safety and integrity.

The SEBI clarification assumes added significance as the market is poised to enter a new orbit and the benchmark indices are to scale new peaks following good corporate results. This week, the BSE Sensex is likely to cross the 5000 points milestone. The October sales figures of certain commodities and consumer/capital goods sector are anticipated to be good after a decent and well spread out monsoon. The FIIs, after a brief lull, were back in action on Friday with a gross purchases of Rs 856.7 crore and a net investment of Rs 337.3 crore. The derivatives segment is likely to gain greater weight in the November series provided negative news do not cloud the political firmament. Even though fundamentals are intact, a bull market is vulnerable to political and price manipulations.
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