Mobius backs ban on participatory notes

Mark Mobius, investment guru and managing director of Templeton Asset Management, today said he favoured a ban on controversial participatory notes (P-notes) in India.

Speaking at an investor conference organised by the Citigroup this morning, Mobius, however, called for liberal FII (foreign institutional investor) registration norms, which are expected to be announced by the Securities and Exchange Board of India (Sebi) after its board meeting on Thursday.

"The flow will continue, depending on how liberal the new registration is,'' he said.

The Sensex, the Bombay Stock Exchange's benchmark index, fell by nearly 8 per cent, or 1,498 points, from record highs of 19,058, after the capital market regulator proposed new curbs on capital inflows into the stock markets through the P-note route last Tuesday.

The market's recent decline is "minor, not significant'', Mobius told the conference delegates, including senior executives from foreign banks such as HSBC, Deutsche Bank, JP Morgan, Citigroup, among others.

According to the Sebi, the P-notes exposure into stocks and derivatives is as high as $88 billion. Mobius, who overseas $48 billion in emerging market stocks, said the new rules proposed by the Sebi to curb the issuance of derivatives would not stop record inflows into the Indian stock markets.

Earlier, speaking at the function, T C Nair, a wholetime member of the Sebi, said the regulator would meet local brokerage houses to explain and discuss the proposed new rules on P-notes.

All leading domestic brokerage houses, which deal in institutional business, would be represented at the meeting, sources said.

Sebi Chairman M Damodaran yesterday told investors, including the Goldman Sachs Group and JP Morgan Chase & Co, that registered brokers in India would be allowed to apply for a licence for accounts based outside India. There would not be a limit on the number of accounts each brokerage could convert, he said on a conference call.