Sebi okays short selling by institutions

Tighter norms for IPOs of realty firms.

The Securities & Exchange Board of India (Sebi) today tightened the norms for initial public offerings (IPOs) by real estate companies, while allowing short selling of equities by institutional investors, including FIIs.

It also made grading mandatory for all IPOs and waived the requirement of minimum public holding post-IPO for public sector companies and institutions.

The stock market regulator said real estate companies looking to tap the market must show the current value of their landholding, which should only include land actually owned by them.

A large number of real estate companies have lined up IPOs. Many have computed the value of their land on basis of what they expect the price to be when the projects are completed.

When approached for comments on Securities & Exchange Board of India's directive, a senior executive with Delhi-based DLF said, "This will work to our advantage. The cost of land has been escalating and we will now be able to do the valuation at today's prices."

DLF has been awaiting Sebi's permission to float an IPO that is estimated to garner Rs 13,600 crore, more than any issue so far.

Addressing a press conference in Mumbai, Sebi Chairman M Damodaran said the stock market infrastructure was ready for short selling by institutions.

"The Sebi board has authorised short selling by institutions exactly on the lines of the announcement made in the Union Budget," he said.

At present, only retail investors are allowed to sell short, ie sell shares that they don't possess, in anticipation of receiving them at a lower price in the future. Short selling by institutions would require a comprehensive system of lending and borrowing shares, which is being put in place.

The Reserve Bank of India, which was opposed to short selling by institutions, is said to have given its "in-principle" consent since the trade would be delivery-based and therefore not leave room for leveraging.

FIIs will have to be in possession of the security before they indulge in short selling. Under the Foreign Exchange Management Act, no foreign entity can leverage its existing positions in the equity market.