FIIs in selling mode

On the day when the Securities & Exchange Board of India (Sebi) draft proposals on restriction of FII inflow through participatory notes (PN) caused a major jolt on the bourses, FIIs sold shares worth Rs 1776.60 crore on Wednesday, 17 October 2007.

The FII outflow of Rs 1776.60 crore on 17 October 2007 was a result of gross sales Rs 7853.10 crore and gross purchases Rs 6076.50 crore.

Sebi’s proposals to clamp down participatory notes to restrict foreign inflows, announced after trading hours on Tuesday, 16 October 2007, created havoc on the bourses yesterday, 17 October 2007. Trading was halted on that day just within minutes of opening, as market wide circuit filters were triggered by a steep fall. Later, the market had staged a sharp pull back from day’s lows, since afternoon trade after

Sebi chairman M Damodaran, clarified to television media that participatory notes (PN) are not being banned and there will be no bar on FII inflows. He also clarified that Sebi is not proposing a ban on offshore derivatives.

After trading hours on Tuesday, 16 October 2007, Securities & Exchange Board of India issued draft proposals wherein the market regulator proposed restriction on use of the popular participatory notes (PNs) route of FII inflow and it also recommended unwinding of some PNs within 18 months.

PNs are financial instruments used by foreign investors that are not registered with Sebi, to invest in Indian shares. FIIs and their sub-accounts buy Indian securities and then issue PNs to foreign investors with these securities as the underlying.