Sustained fears of a ban on Participatory Notes (PNs) issued by foreign institutional investors (FIIs) on behalf of largely anonymous overseas investors badgered the BSE Sensex for a third day in a row on Friday. Sensex fell 2.5 per cent, to 17,560 points.
A key question hung in the air: Will efforts to register and moderate the customers who act through PNs lead to a flight of foreign capital from India? The government is mainly worried by a flood of dollars hurting exports.
Experts say global funds look at everything in an economy, including interest rates, structural reforms, size of market, corporate behaviour etc. As long as these are fine, inflows are safe.
“The impact of regulatory decision on PNs could impact the market for a while — a month or so. That is the gestation the market may take to settle down after the norms come into being. However, it may not cause long-term reversal in inflows,” said Devendra Nevgi of Quantum Mutual Fund.
“There may be some volatility in the short term. But the issue needs to be settled once and for all,” said TP Raman, managing director, Sundaram BNP Paribas Mutual Fund.