Short selling in cash will set in counter balances

Permitting short sales in the cash market is unlikely to add to the selling pressure in the market, said market experts.

In response to a query at an investor conference in New York, Sebi Chairman M Damodaran said the regulator would allow short selling in the cash market too. Currently, individual traders can sell short in intra-day trades while institutions cannot.

Market players feel that the regulator may be thinking on these lines in order to effectively put some speed-breakers at a time when the market seems overheated.

Introducing short selling in the cash market will bring in counter balances, though the market does enjoy that in the futures segment currently. "Market bubbles can be countered effectively if short selling is allowed," said Vikas Khemani, head - derivatives, Edelweiss Securities.

"The market has only seen lesser volatility after futures were introduced. Volatility will actually come down if short selling is allowed," he added.

But before introducing short selling in the cash market the regulator will have to put in place a proper stock lending and borrowing mechanism, brokers said.

In any case, they feel that the move will enhance liquidity, lower impact cost and eliminate the possibility of prolonged mispricing as market players can exploit arbitrage opportunities more effectively.

Vijay Bhambvani of BSPL said, "It will have a positive impact on the market as investors can benefit by participating in a falling market too. This is not likely to lead to any drastic selling pressure."

Nilesh Shah, chief investment officer, Prudential ICICI Mutual Fund, said, "This move per say will not have any material impact on the markets and is not likely to bring any volatility. Moreover markets are not entirely dependent on such moves." Drivers like valuations also hold a strong bearing in the movements of the market. He feels that this move is likely to bring equilibrium in the market."

He added that the SEBI has given an opportunity to fund managers to launch several products to suit the needs of various investors and the move will provide the desired flexibility to fund managers.