India tightens rules on P-notes

India's stock market regulator on Thursday tightened rules regarding the use of participatory notes, which unregistered foreigners could use to gain exposure to Indian shares.

The curbs were in line with the proposals that the Securities and Exchange Board of India (SEBI) first floated last week and sought comment on. SEBI said the decision was about improving the transparency of inflows into India's financial markets by getting participants to register.

Chandan Desai, Director of Mauritius-based Silverstreak Management Services: "The biggest entities will take the front door to invest in India, but smaller entities which don't meet the criteria will probably stay out. For the short-term, money flow may get hampered for a while, but the country is on such a strong wicket, that investors will continue to come in. For the long term, these are definitely good measures."

Suraj Saraogi, Managing Director, Key Note Capitals: "All the decision were on expected lines and there are no surprises in the market. In a broker's language, I can say that all the poison is out of the market now and it will give a thumbs-up sign tomorrow."

Viral Doshi, an independent strategist, Mumbai : "Any measure which is more about transparency and less about capital flows control is always welcome ... the regulator always has a concern about the quality of the money coming into the system. There are many foreign funds with genuine money and genuine interest in India, and they will continue with their investments into the country."

Gurudatta Dhanokar, Derivatives Strategist, Almondz Global Securities: "Though this decision will create short-term panic in the market, overall it is a good one. The whole process will be now much more transparent once the unknown entities withdraw from it, and this will increase the comfort levels of existing players or the registered FIIs."

Nipun Mehta, Chief Executive, Unitis Tower Wealth Advisory, Mumbai: "I look at the measures in a very positive manner. This is something which should have happened much earlier, but better late than never. This is just about cleaning up the system, getting rid of the unregulated money in the market. Very clearly, there was some discomfort about foreign fund inflows which was excessive and one couldn't control it ... there should be transparency about who is investing in the system."

A Prasanna, Economist at ICICI Securities, Mumbai: "The broad measures are along expected lines and they seem to be keen on phasing out participatory notes on a gradual basis. This will have a moderating effect on the inflow of capital in the near term and in terms of the central bank's policy next week, they should maintain status quo on rates. There is no need to raise banks' reserve requirements immediately as they can monitor the impact of these moves on the inflows of money in the near term and also the festival season spending is due. There is no need to rush into a cash reserve ratio hike."