'It's a pragmatic move'

Q&A/ SHANKAR SHARMA

Not too many are willing to defend Sebi's moves on regulating FII inflows through P-Notes. Shankar Sharma, Director & Chief Global Trading Strategist of broking firm First Global Securities, however, argues that the move is a pragmatic one and that the market will get over its jitters quickly enough. Excerpts from an interview with Rajesh Bhayani:

The market has reacted adversely to Sebi's proposal. How do you look at it?

I would say it's a pragmatic measure, and will actually lead to more inflows in the long run. Sebi is sending a message to everyone, including hedge funds, that they can invest directly in the Indian market by getting registered as FIIs. India is one of the few countries in the world that is inviting hedge funds to invest directly. It's a step towards making India further open to foreign capital and this is going to lead to greater flows over the long run. Liberalisation is always welcome, barriers are always unwelcome.

Is the regulator justified in taking such measures?

The regulator has rightly said, 'come and invest directly'. Sebi has rightly recognised that hedge funds are a legitimate and increasingly important source of capital, and so, is opening the doors to them. It is a great, bold move and Sebi, the RBI and the finance ministry need to be congratulated for this.

But FII registration procedures are cumbersome ...

The procedures for registering FIIs are not all that cumbersome but, in any case, Sebi is simplifying them further. Some countries do have offshore derivatives instruments like participatory notes.

How will the markets react to the move over the near term?

I think in a few days, the market will come back to its earlier high levels. The India story is intact, and the fundamentals are good. The momentum may continue. I don't see anything to get panicky about.