Investors, take note
Investors, take note
It was quite clear that the dollar deluge into India has pushed the rupee too high for comfort and has created a stock market bubble. Some variant of capital controls was clearly on the cards. Most observers were expecting the Reserve Bank of India to make the first move, since it is fighting the toughest battle. But Sebi seems to have taken the lead with a discussion paper on issuance of participatory notes (PN), which are offshore instruments used by hedge funds to invest in India. While the proposed restrictions on PN issuance are not yet policy, we think the financial authorities are sending clear signals to the investing community to be careful.
The markets are likely to be rattled by Sebi’s missive, but tighter regulation of hedge fund activity in India is welcome for the long-term health of the market.
We generally prefer light regulation, but the current inflows are unprecedented and hence call for strongaction.
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