FII mood still the same post PN draft: Raghav Bahl

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The Finance Minister, Mr P Chidambaram spoke at the ICICI Investors Meet, to a group of 150 investors and painted a very upbeat picture of the Indian investor market.

Raghav Bahl , Managing Director of Network 18 , gives his view on the FM speech. He said that the FM clarified about the deal with Participatory Notes, which is what all present wanted to know about.

Excerpts from an interview with Raghav Bahl:

Q: As I said, Mr Chidambaram has painted a very upbeat and rosy picture of the investor market. What do you think is the investor mood here at this Conference?

A: I think frankly, people would have accepted the picture that he painted, but there is only one issue that people wanted to talk about today and this was the ban on Participatory Notes . Actually, he clarified this is not a ban and there was a lot of back and forth on that.

The key things were - in his statement he almost pleaded for people to understand his problem. He said, 'Please have sympathy for our problem'. He actually used that phrase and he said 'I have got too many dollars coming in and this is a measure to moderate the inflow of dollars'. He did not think he is banning Participatory Notes or restricting them for any other reason except for foreign exchange problems.

When I specifically asked him that there have been issues about the quality of money that has come in via this route, he said that he had not concern of that. So he really thinks he has done a measure to control and moderate the dollars not for any other reason.

Q: I want to talk to you about the FII mood towards India; do you think that has changed after SEBI 's proposal draft on P-Notes?

A: I don't think the mood has changed at all. I think what you could get from this room was that there was disappointment that this measure has come in, because now they would have to find other ways. They would have to register directly as FII's and the major concern that came was not about the fact that they would not want to invest in India. The major concern was, 'will you be able to process our applications speedily?', 'is this the only thing you could have done?'

When the Finance Minister said that actually this affects only 23 of 40 FII's out of the thousand, and this was enough head room with the others.

But those are the 23 of 40 FII's who act as brokers. And therefore we have to invest through them. So what one gathered from here was - listen we want to invest in India, this was a very nice, convenient route, you stopped that. We are not confident that you have opened another route for us today to register as FII's. Could you please do that?

Q: He is also trying to rally investor confidence in the Indian markets, saying that we have new laws passed by the Parliament?

A: It's his job to be a salesman for India and he and the Prime Minister do it very well. You've mentioned that as well, the fact that he had written down the point movement in the stock markets over the last two days. Today is a steep fall in the stock markets in India; he actually attributed it very largely to a motivated rumour about the Prime Minister's resignation. That again, I don't think, washed completely with this room. I think this room felt that 'no, the restrictions that have been placed will cause short-term dislocation.'

I did not sense anywhere that people was saying that now we are off India. But everyone's worried that there is going to be short-term dislocation, everyone's worried that they will not be able to register as quickly as FII's with SEBI, that the process of registration is long.

There were many questions on that and the Finance Minister kept on saying, 'please send me your suggestions, I will ensure that we will talk to SEBI, that your logistical problems are taken care of.' So there was this real concern that in the short-term this will cause dislocation and in the long-term they were pleading for quicker actions by Indian Regulatory Authorities. 

Q: Mr Chidambaram said that the concern was on the quantity and not the quality of flows?

A: That's right, that's the question I specifically did ask him, because there's been this whole debate in India when the first report was published about banning Participatory Notes. There is a school of thought, which is subscribed to by very high people in India, very high level regulators, that this is not clean money.

And the Finance Minister himself has always been of the opinion that this is not the case. So today I had to ask him that this 'restriction' as he calls it, 'ban' what other people call, has it been prompted by the quality of money issued?

But I think he was categorical about it. As far as he is concerned, this is a process to manage the huge inflow. He even pleaded and said please have sympathy for my situation. He admitted that we don't have mastery of the situation, this is a very new situation for us and we are still learning the ropes. These are very uncharacteristic statements from the man, who usually likes to give the sense of been completely in control.