FIIs short selling!!

The Securities Exchange Board of India on Tuesday released the second set of data on securities lent overseas by FIIs between October 15 and October 17.

NTPC is on the top , with more than 21.19 lakh of its shares lent to overseas investors, the SEBI data showed.

The data was compiled from reports submitted by 33 of 34 participatory notes-issuing FIIs, said SEBI.

The regulator intends to study the data to check for correlation between overseas lending of these securities and domestic sale of shares by FIIs.

Analysts said it is too early to tell if such securities lending by FIIs leads to selling in the domestic market.

The stock price of NTPC, for instance, recorded a drop of more than nine per cent from October 15 to October 20, but analysts said there were so many factors at play.

The second stock on the list was Hindustan Unilever Ltd (15.75 lakh shares). This stock rose 3.50 per cent from October 15 to October 20.

Reliance Capital, of which more than 7.28 lakh shares were lent to overseas investors, fell more than 8 per cent during the period, while L&T, 6.32 lakh shares of which were lent, fell 9.15 per cent.

BHEL, whose shares were also lent, fell by close to 21 per cent between October 15 and October 20.

FIIs have been net sellers for Rs 48,368 crore or about $12 billion in 2008, according to the data on SEBI Web site.

SEBI had last week asked FIIs and their agents to provide information of Indian securities lent to entities overseas, which would have the effect of a short sale in the security in the Indian market.

It had announced it would give details of lending by overseas funds and their sub-accounts abroad on a consolidated basis twice a week, on Tuesdays and Fridays, providing the first set of data on Oct. 17.
SEBI displeasure

Later on Monday, SEBI said it disapproves of the overseas lending/borrowing activity of FIls and the consequent selling pressure in the cash market in India. It also said that it has communicated its disapproval to FIls.

It has also warned that if necessary stronger measures will be taken.

There is some speculation in the market on what these stronger measures would constitute. A ban on short selling by FIIs was the most common speculation. In fact, part of the reason for the gain in stocks on Tuesday was attributed to SEBI’s implied warning to FIIs that it does not approve of short selling in Indian securities.

“In any free market there should be no ban on short selling, but a fool-proof mechanism should be worked out,” said Mr Manish Sonthalia, VP-Equity Strategy, Motilal Oswal financial Services.

While the regulator has indicated that they are still studying the data, they have already expressed their disapproval of overseas lending and borrowing of Indian shares, he said.

According to the SEBI Web site there are 1,541 registered FIIs as on October 21, 2008, while there are 4,735 registered sub-accounts

via BL