SEBI’s concall with foreign institutional investors (FIIs) did not have any fresh negatives. The one material takeaway was for proprietary sub accounts who can now move towards seamless FII registration. Prop books account for a sizeable portion of overall P note assets and to that extent this is a material relief. On Assets under custody (AUC), an operating date of 31st august was mentioned but uncertainties linger on the mode of calculation, so the fine print on this is keenly awaited. For the rest, assurances have been made and the market will have to wait to read the fine print on the 25th. A lot of issues on corporate sub accounts and hedge fund registration procedures need clarity. SEBI says that the content of eligibility criteria is being reexamined so hopefully contentious clauses like the minimum one year track record for registration will be looked into.
The feeling one is getting now is that this whole issue started with one intent and will end up in another shape altogether. I don't think the finance ministry's plans of "restricting capital flows" through a P note clampdown is about to meet it's objective, in fact my sense is that the ministry is backing off already. Why else would SEBI be interested in easing and expediting the FII registration process considerably? That can only mean more flows. So at the end of all this brouhaha, the regulator will possibly put in place easier entry norms for hedge funds and with a few weeks of an interim hiccup for some accounts and investors, life will carry on. The FM will have to find other ways of restricting flows.
The market seems to be pricing in such a scenario. Yesterday's pullback in the face of global weakness was quite remarkable. In a sense, the market seems to be moving on from this P note issue. After all, it's a technical issue, albeit a crucial one and technical issues generally get sorted over time. 25th will still be an important date in the calendar, but now the market's focus will probably shift to how emerging markets generally perform. If this is just a passing phase of global volatility, then our market seems alright. Either way, it was encouraging to see 5,000 hold out on the Nifty and buying on the dip yesterday. That reflects underlying strength, P-notes notwihstanding.
(The writer is Executive Editor, CNBC-TV 18)