P-notes clarity buoys markets

After initial nervousness, key stock indices surged by over 1 per cent each as investors made fresh purchases on realisation that the proposed move to curb capital inflows through the participatory notes (P-notes) would make stock markets cleaner and stronger.

The BSE Sensex gained 257 points, or 1.39 per cent, to close at 18,770, after remaining flat in the initial minutes of the trade on Thursday. The broader S&P CNX Nifty was up by 72 points or 1.32 per cent at 5,568.

The markets were halted for trading last Wednesday after Sebi proposed curbs on P-notes on the evening of October 16. With Thursday's rise, the Sensex is just 288 points away from the record of 19,058 it hit before the P-notes announcements.

Dealers said the rise in markets was a combination of both short-covering and building up of fresh positions by foreign institutional investors (FIIs).

Arindham Ghosh, chief executive officer, Mirae Asset, a Korean mutual fund, said: "Markets were anticipating no major negative announcement from the Sebi after the board meeting. Moreover, the sentiment among investors is positive with the Sebi likely to speed up the process of registration of sub-accounts."

The Sebi announcements came after the market closed on Thursday. On the eve of the board meeting, Sebi Chairman M Damodaran had said that all the 20 PN-issuing FII sub-accounts had expressed their intent to convert into FIIs.

Currently, there are 34 PN-issuing entities in the country, of which some are already FIIs. This number was 14 in March 2004.