Now that the markets have accepted the P-Note norms fairly positively and appear to have moved on, the question is what happens in the interim, till P-Note users and sub-accounts get registered. One view is that the market becomes extremely range bound and lacklustre as flows dry up. Some believe that volatility may rise as trading volumes dry up. However, here is an alternative picture.
The basic assumption has to be that fundamentals remain intact. Earnings remain fine, no mid-term elections are called in the next two months and no sharp global meltdown happens. In such a steady state, let us discuss a somewhat different technical picture. Yes, hedge funds will not buy much in this period till they get clarity on the ‘regulated’ clause. I suspect their freeze is on as of Friday morning. But equally they are not likely to sell anything. They are not required to, just yet and why would they want to sell down their only holdings in a market where they cannot buy any more, at least for the moment.
Generally speaking, there may not be much by way of selling in Indian stocks from FIIs now, as it is a scarce commodity which a lot of hungry people do not have access to. So we have a market which does not expect much selling and probably would see pent up buying in a bunched fashion when the registrations actually come through from SEBI. In such a scenario, domestic HNIs, operators and corporate investors may want to buy and hold, if only to front run this expected FII rush a couple of months down the line. Thus, despite a marked slowdown in hedge fund buying, the market technicals may not be so unsupportive, particularly if there are no fundamental setbacks.
Over a period of time though, ‘overseas’ versions of stocks will gain currency. ADRs will see more appetite, their premiums would increase. Part of the futures action will shift to the Singapore-based SGX, the dollar denominated Nifty futures. Over time, many firms may find ADRs and GDRs even more attractive as any foreign investor can access them with ease. To that extent, a part of our capital market will be ‘exported’. To avoid this, the only way is to take entry procedures to the next level, which is to allow free and unrestricted entry to any ‘foreign’ entity into our market as long as they register.
(The writer is Executive Editor, CNBC-TV 18)