The day of reckoning for P Notes is here. If the market were terribly nervous or apprehensive of the outcome, it would have sold off before the event. The fact that it is going in strong indicates it has almost put the issue behind it. Unless there are some obvious setbacks, life will carry on.
In fact, if SEBI were to come out with a set of liberal eligibility criteria for hedge funds and clarify some of the grey areas, there is a good chance of the market leaping beyond 19,000 again into unchartered territory.
For hedge funds, the issue is of eligibility criteria. The newer funds would not have a one-year track record, so SEBI would need to address that in some form, perhaps by considering the track record of the fund managers or the fund's track record in other markets.
Two, some of these funds would not be regulated by a regulator in any jurisdiction. For them to register, SEBI would have to relax the norms, maybe consider FSC as a legitimate regulatory body. Three, many of these funds are actually run by persons of Indian origin (PIO), a point of discomfort for the regulator. Whether SEBI should or would allow such funds is a matter of debate. Ineligibility under any of the above criteria would create an obstacle.
In that case, these funds that have been investing in India would have no recourse other than liquidating their positions here, over time. If it comes to that, the number of such funds and the amount run by them assumes some significance. Issues of cost and convenience are marginal, to my mind. They may be irritants, but will hardly prevent a fund from investing in a market with terrific prospects. There will be cribs, but people will adjust.
SEBI will probably be flexible with P Notes for IPO subscriptions as well. This is the last market they would want to choke or stifle. THE AUC calculation date too should be prospective and not retrospective. A retrospective date could induce selling from funds that bought post that date. It is unlikely though. My guess is that the market has a sense of what is coming today.
The initial jolt has been absorbed. If a constructive paper is put out today which facilitates registration of 'most' entities keen to invest in India, the market will take the view that any adjustments will simply be interim in nature and this P Note issue will be a non issue in 3-4 months time.
Capital inflows will continue, perhaps in time even more funds will find it easier to enter. That is good for the stock market, what it means for the rupee is another matter altogether. I mention it only since the rupee is where it all started.
(The writer is Executive Editor, CNBC-TV 18)