P-note bogey sees markets end on weekly loss

One of the most tumultuous weeks for the stock markets ended on a volatile note on Friday as foreign investors continued to dump stocks and derivatives positions for the third day running on fears that the proposed curbs on stock investments through participatory notes' (P-notes) may come into force next Thursday.

The benchmark Sensex of the Bombay Stock Exchange fell 438.41, or 2.4 per cent, on Friday to 17,559.98. The index, which hit a new record of 19,058.67 early in the week, saw three days of sharp falls.

The Sensex gyrated by over 800 points as brokerage houses asked investors to cut their leveraged positions fearing margin calls. Margins calls are triggered when brokerage houses (and stock exchanges, in extreme situations) unwind client exposures to meet margin requirements when prices fall sharply.
 

3 DAYS THAT SHOOK THE MARKET Investment in equity  (Cash market)
Date	FII (Rs cr)	DII* (Rs cr)
17-Oct	-2012.06	285.06
18-Oct	-1130.59	96.02
19-Oct	-1750.76	186.26
* Domestic institutional investors

Investments in derivatives
Date	FII (Rs cr)
Oct 17	-4221.85
Oct 18	-2785.33
01 Oct	-895.87

The Securities and Exchange Board of India (Sebi) suggested curbs on P-notes, which are offshore derivative instruments, to check massive capital inflows in the stock markets, which were propelling stock prices to new records on a daily basis.

With Friday's fall, the index has lost about 1,492 points, or 7.83 per cent, after Sebi's P-note proposals were put out for feedback late evening on Tuesday, a move that caused trading to be halted for an hour when the markets opened on Wednesday. 
 

MARKET CAP
Rs crore

Today's Mcap(Oct 19)

5542832

Single-day loss(Oct 18)

-107839

Loss since Oct 16, 07

-384555

This is also the first weekly loss for the Indian markets in the last nine.

The S&P/CNX Nifty Index on the National Stock Exchange declined 135.70, or 2.5 per cent, to 5,215.30. Nifty futures for October delivery slid 2.1 per cent to 5,205.

Sebi, at its board meeting scheduled for October 25, will decide how to curb the $88 billion P-note investments made by unregistered investors, including hedge funds, in Indian stocks.

A notable feature on Friday was the sell-off in power stocks such as Reliance Energy (down 16.22 per cent to Rs 1,333.25), Tata Power (down 9.40 per cent to Rs 976.65), Power Finance Corp (down 9.20 per cent to Rs 198.80) and NTPC (down 3.43 per cent to Rs 201.35).

Shares of power sector companies were the most recent ones to join the bull-run. It is now interpreted that most of the recent P-note investment may have gone into power stocks.

Reliance Capital, which lost 9.66 per cent to Rs 1,497.95, was another big loser.

Dealers said the markets also witnessed huge selling by operators in select small and mid-cap stocks, fearing that a crash in key indices might trap them in these stocks due to illiquidity. Over 2,100 stocks ended lower, while 550 stocks ended higher on Friday.