Hedge fund lobby pitches for PNotes

Olga Tellis

There is a lobby building up to get the ban on participatory notes (PNotes) revoked. The reason given is that these funds are shying away from India and that Singapore is the major gainer. One hopes that the Securities and Exchange Board of India (Sebi) does not fall to this pressure. Apart from the fact that Sebi can hardly be seen toppling a decision taken by the outgoing chief, the reasons for which the ban was imposed still exist.

Participatory Notes are instruments held by entities who do not participate directly in the stock market. Foreign institutional inves-tors (FIIs) registered with Sebi buy the shares on their behalf and issue the PNotes.

Most of the PN holders are hedge funds and there is a widespread suspicion that the PNote syndrome is a case of round tripping (Indian money coming back into the country via PNotes).

Dangerous for stability

The ban on PNotes served a dual purpose of curbing inflow of foreign funds which has been a growing problem for the Reserve Bank of India and added to inflationary woes and the second was it helped the national security situation as the growing use of PNotes — nearly 30 per cent of the market transactions — posed a danger. One did not know the face behind the money.

Sebi has given these funds the option to register and if they find that the registering process is difficult and cumbersome they could discuss the same with Sebi.

The hedge funds who are short term investors play in the derivatives segment and they are double leveraged. First, they have borrowed money and then they can play ten times that money in the derivatives segment. This is very dangerous for stability say analysts.

Coupling in distress

There is a saying that when you cry, you cry alone while success has many friends. But in the financial world, the sub-prime crisis in the US has the emerging markets also dragged in the vortex of uncertainty.

Mr Amitabh Chakraborty, president, equity, at Religare has this very interesting bit of information.

He says in the downfall of the US mortgage crisis everything is coupled, and this has been the story since 2000-01.

When the S&P index fell 48 per cent the emerging markets index fell by 51 per cent and the crisis lasted over 14 months.

In the present crisis the S&P has fallen by 15 per cent and the emerging markets index has fallen by 16 per cent.

Hardship

investors

Here is good news for investors whose fixed deposits are stuck in companies. Investor Helpline has taken up expeditious repayment to depositors of overdue refunds specially to those in dire circumstances. These relate to cases in the event of medical emergencies or repayment to senior citizen. Helpline has requested the concerned companies to make payment in such cases on humanitarian grounds.

The total amount requested for payment is Rs 12.57 lakhs. The companies are Morepen Labs, Lloyds Fin-ance, Escorts Finance and DCM Financial Services.

Morepen hardship committee

The Company Law Board had ordered Morepen Labs to constitute a Hardship Committee which would go into such cases and recommend immediate payment.

Similarly, Lloyds Finance and Escorts Finance Ltd have also set up such committees. Investors can email their details for their refunds by logging on at www.investorhelpline.in.