"Our indices have turned quite volatile, after posting new highs, oscillated between negative and positive territory for most part of the session on tuesday, finally closed flat to marginally negative. US markets were down and closed in negative for the second day in this week on crude touching $88 per barrel, and concerns of home finance, and credit related issues.
"After the closure of markets, SEBI released a draft paper on "P Notes" which help flows into capital markets in India, forming 51% of total FII flows, as at the end of 30th sept'2007, total outstanding amount invested under this category stands at whopping Rs.1,10,000 crores shall be the target of this new guidlines that may have to be phased out in the coming 18 months, in case the draft guidelines become regulation in the ensuing SEBI board meeting on 25.10.2007.
P notes are issued by FIIs, who raise the money (dollars) which are allowed in India also, where the identity of the investor is unknown to the regulator as of now. This has been a subject of debate among regulators, RBI and Government for the past 3 years, and the flow of 8 Billion dollars entering Indian Capital markets in the last 16 days of this month has raised lot of concern for every one, as this is hot money..(short term money)..can be withdrawn with the same speed too, causing lots of volatility and pain to investors and markets.
Currently FIIs are allowed a ceiling of 40% of their investment as P notes, which has to be phased out in the ensuing 18 months, as per the draft guidelines, once they come into force, and New P notes cannot be issued from immediate effect. Ofcourse SEBI invited views and suggestions from all concerned by 20th october, 2007 in view of the urgency to finalise the guidelines and frame work in 25th Board Meeting.
All Indian ADRs in US markets were down anywhere between 5 to 10% on knowing this news, our markets will have immediate gap down opening, as per market sources and market grapewine, if to be believed, Nifty will fall 150 points in the opening itself. If there is investor panic, we may see 10% circuit filters on the indices today! We have been advising that one should stay in cash ever since indices closed above 5250 and suggested convert stock in to cash at the rate of 25% for every raise of 100 points on nifty.
However, small investors who have missed the rally need not worry and sell the holdings in this situation, and if one is having cash can buy technology stocks, banking and finance and export oriented businesses, in the mayhem, if it happens, for long term holding. This times of corrections provide one time golden opportunity for building long term portfolios. One should not trade in this type of situation, as stopl osses shall be triggered in no time, resulting in certain losses only.
Support for the Nifty: 5550 - 5422 -5140 - 5000 & Support for the Sensex: 18800 -18215 -17525 - 17000
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