What do experts read into Sebi's PN move?

The Securities and Exchange Board of India, or Sebi, has released its report on P-Notes, or participatory notes. It suggests that FIIs should not renew or issue PNs with underlying as derivatives. It also wants sub-accounts to not issue PNs. The regulator has asked for comments on its paper by October 20.

So, what do experts have to make of Sebi's latest proposal?

R H Patil, Former MD, NSE, said, Sebi's proposed move is not a wholehearted step. "There is a bubble built up in markets and small investors have deserted. We should not have allowed this bubble to build up to such a level."

The regulator, he feels, should have taken a step on PNs earlier. "The markets would have imploded if Sebi's proposed move hadn't come. The proposed move is positive as 18,000-19,000 for the Sensex is unrealistic."

He doesn't feel the market is safe enough to enter. “Those who wanted to encash their investments have already encashed. “The tussle that is going on among big players and the huge amount of money that is coming in is a dangerous thing as it is resulting in an exchange rate appreciation in a big way. The foreign investor, whether the fundamentals are good or not or whether he does a technical study or not, just brings in money and gets a safe return as the rupee is depreciating.”

SS Tarapore, Former Deputy Governor, RBI, said the Committee on Capital Account recommended a ban on PNs and within one-year allowed PNs to run-off. "Don't allow fresh PNs to be created."

Ambareesh Baliga of Karvy Stock Broking said the bubble in the markets wouldn't have built up if Sebi moved six months ago. "We could see a sell-off and this could be a sentimental sell-off. But there should be a much bigger sell-off once it becomes a directive."

Subodh Kumar, Chief Investment Strategist, Subodh Kumar & Associates, said international investors would not like such intervention. "The effect of Sebi's proposed move could be more violent in the short-term. A 10% correction in stock prices will not be a big deal. Long-term investments though are likely to remain."