What are P-Notes?

A Securities and Exchange Board of India proposal to tighten the rules for purchase of shares and bonds in Indian companies through the participatory note route took the breath away of the Indian stock market and it suffered its biggest fall in a history.

So what are these participatory notes? And why do they have this huge impact on the Indian securities markets?

P-Notes

Participatory Notes -- or P-Notes or PNs -- are instruments issued by registered foreign institutional investors to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India.

Financial instruments used by hedge funds that are not registered with Sebi to invest in Indian securities. Indian-based brokerages to buy India-based securities / stocks and then issue participatory notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors.

Why P-Notes?

Since international access to the Indian capital market is limited to FIIs. The market has found a way to circumvent this by creating the device called participatory notes, which are said to account for half the $80 billion that stands to the credit of FIIs. Investing through P-Notes is very simple and hence very popular.

What are hedge funds?

Hedge funds, which invest through participatory notes, borrow money cheaply from Western markets and invest these funds into stocks in emerging markets. This gives them double benefit: a chance to make a killing in a stock market where stocks are on the rise; and a chance to make the most of the rising value of the local currency.

Who gets P-Notes?

P-Notes are issued to the real investors on the basis of stocks purchased by the FII. The registered FII looks after all the transactions, which appear as proprietary trades in its books. It is not obligatory for the FIIs to disclose their client details to the Sebi, unless asked specifically.

What is an FII?

An FII, or a foreign institutional investor, is an entity established to make investments in India.

However, these FIIs need to get registered with the Securities and Exchange Board of India. Entities or funds that are eligible to get registered as FII include pension funds; mutual funds; insurance companies / reinsurance companies; investment trusts; banks; international or multilateral organisation or an agency thereof or a foreign government agency or a foreign central bank; university funds; endowments (serving broader social objectives); foundations (serving broader social objectives); and charitable trusts / charitable societies.

The following entities proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs:

• Asset Management Companies
• Investment Manager/Advisor
• Institutional Portfolio Managers
• Trustees

How does Sebi regulate FIIs?

FIIs who issue/renew/cancel/redeem P-Notes, are required to report on a monthly basis. The report should reach the Sebi by the 7th day of the following month.

The FII merely investing/subscribing in/to the Participatory Notes -- or any such type of instruments/securities -- with underlying Indian market securities are required to report on quarterly basis (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec).

FIIs who do not issue PNs but have trades/holds Indian securities during the reporting quarter (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec) require to submit 'Nil' undertaking on a quarterly basis.

FIIs who do not issue PNs and do not have trades/ holdings in Indian securities during the reporting quarter. (Jan-Mar, Apr-Jun, Jul-Sep and Oct-Dec): No reports required for that reporting quarter.

Who can invest in P-Notes?

a) Any entity incorporated in a jurisdiction that requires filing of constitutional and/or other documents with a registrar of companies or comparable regulatory agency or body under the applicable companies legislation in that jurisdiction;

b) Any entity that is regulated, authorised or supervised by a central bank, such as the Bank of England, the Federal Reserve, the Hong Kong Monetary Authority, the Monetary Authority of Singapore or any other similar body provided that the entity must not only be authorised but also be regulated by the aforesaid regulatory bodies;

c) Any entity that is regulated, authorised or supervised by a securities or futures commission, such as the Financial Services Authority (UK), the Securities and Exchange Commission, the Commodities Futures Trading Commission, the Securities and Futures Commission (Hong Kong or Taiwan), Australian Securities and Investments Commission (Australia) or other securities or futures authority or commission in any country , state or territory;

d) Any entity that is a member of securities or futures exchanges such as the New York Stock Exchange (Sub-account), London Stock Exchange (UK), Tokyo Stock Exchange (Japan), NASD (Sub-account) or other similar self-regulatory securities or futures authority or commission within any country, state or territory provided that the aforesaid organizations which are in the nature of self regulatory organizations are ultimately accountable to the respective securities / financial market regulators.

e) Any individual or entity (such as fund, trust, collective investment scheme, Investment Company or limited partnership) whose investment advisory function is managed by an entity satisfying the criteria of (a), (b), (c) or (d) above.

Sebi not happy

However, Indian regulators are not very happy about participatory notes because they have no way to know who owns the underlying securities. Regulators fear that hedge funds acting through participatory notes will cause economic volatility in India's exchanges.

Hedge funds were largely blamed for the sudden sharp falls in indices. Unlike FIIs, hedge funds are not directly registered with Sebi, but they can operate through sub-accounts with FIIs. These funds are also said to operate through the issuance of participatory notes.

30% FII money in stocks thru P-Notes

According to one estimate, more than 30 per cent of foreign institutional money coming into India is from hedge funds. This has led Sebi to keep a close watch on FII transactions, and especially hedge funds.

Hedge funds, which thrive on arbitrage opportunities, rarely hold a stock for a long time.

With a view to monitoring investments through participatory notes, Sebi had decided that FIIs must report details of these instruments along with the names of their holders.

Sebi Chairman M Damodaran has said that the proposals were against PNs but not against FIIs. The procedures for registering FIIs were in fact being simplified, he said.

Sebi has also proposed a ban on all PN issuances by sub-accounts of FIIs with immediate effect. They also will be required to wind up the current position over 18 months, during which period the capital markets regulator will review the position from time to time.

Sebi chairman M Damodaran, in a recent interview Business Standard, said that the amount of foreign investment coming in through participatory notes keeps changing and is somewhere between 25-30 per cent. "Recent indications are that it has gone up a little but again after the sub-prime crisis, there have been some exits. But it's a fairly significant percentage, it's not something you can ignore."

When asked if he was comfortable with almost one-fourth of the market being held by P-Notes, he said that he wasn't 'entirely uncomfortable.'

Sensex tanks 717 points to end below 18K

The benchmark Sensex crashed by 717 points to close below the 18,000-point mark on panic selling by funds following rumors of uncertainty on the political front.

The Sensex, which had surged to a new peak at 19,198.66 at noon, tumbled on fag-end selling by funds and closed with a loss of 717.43 points at 17,998.39. It also touched the day's low of 17,771.16 points.

The selling pressure gathered momentum in the last 30-minutes of trading as some rumours about political developments pulled down the market on selling in blue chip stocks led by metal, capital goods and banking segment stocks.

Similarly, the second wide-based National Stock Exchange index Nifty tumbled by 208.30 points at 5351, after touching the day's low of 5269.65 and a high of 5736.80 points.

P-Notes drived Sensex on wrong way

Participatory Notes are investments made in the markets using derivative instruments through the FII and their identity is anonymous. The government has tried to place to put a cap on the money routed by PNs in order to mderate the inflows. SEBI said the number of FIIs and/or sub-accounts issuing overseas derivative instruments had more than doubled to 34 from 14 in March 2004. SEBI proposed that FII sub-accounts should stop issuing PNs and should wind up their positions over 18 months.

Sebi has also proposed to assign an incremental rate of 5% for issue of participatory notes for FIIs with less than 40 pct of assets in such notes, while those with over 40 pct of assets in PNs can be issued only against redemptions or cancellations.

It was a dramatic and extremely important day for the markets as they hit the lower circuit stopped trading for an hour but showed remarkable recovery and ended off the lows. But the loss was fairly reasonable as compared to turmoil it saw in the opening trade. With more clarification in the statements by Sebi on Paticipatory Notes led to the recovery.

Sensex ended down over 300 points, recoverig 1400 points from the day's low.

The 10 biggest falls in Sensex history

Here are the 10 biggest falls in the Indian stock market history:

1. Oct 17, 2007: The stock market benchmark Sensex crashed by 1,743 points within minutes of opening, prompting suspension of trade for an hour. The 30-share index, Sensex, tumbled to 17,307.90, a fall never seen before.

2. May 18, 2006: The Sensex registered a fall of 826 points (6.76 per cent) to close at 11,391, it's biggest ever, following heavy selling by FIIs, retail investors and a weakness in global markets.

3. April 28, 1992: The Sensex registered a fall of 570 points (12.77 per cent) to close at 3,870, it's second-largest, following the coming to light of the Harshad Mehta securities scam.

4. May 17, 2004: Another Monday. Sensex dropped by 565 points, its third biggest fall ever, to close at 4,505. With the NDA out of power and the Left parties, part of the UPA coalition government, flexing their muscle, the Sensex witnessed its second-biggest intra-day fall of 842 points, twice attracting suspension of trading. At close, however, it regained some of its lost ground.

5. May 15, 2006: The market fell by 463 points to 11,822 points.

6. May 22, 2006: Sensex slumped by 457 points to 10,482.

7. May 19, 2006: Sensex slumped by 453 points to 10,939.

8. April 4, 2000: Sensex slumped by 361 points to 4,691.

9. May 12, 1992: Indian stock markets plunged 334 points to fall to 3,086.

10. May 14, 2004: Sensex lost 330 points to fall to 5,070.

Special Thanxxxx

Hello friends,
i just want to acknowledge my dear friend NIRAV ASMANI as he has help me to update my blog regularly and i hope you people will get more and more possible informations.

Regards,
K-E-Y-U-R----->

Sensex Ki AAG

Would Gabbar, the bear……be back?

Does it make a difference….. ?

We are clearly in a secular long-term market in terms of fundamentals.
If you look t India from a real economy perspective, then you will see
that we fairly insulated from the world markets in term of global flow.
There is tremendous participation from the insurance companies and
domestic mutual funds at these levels.

Even if Gabbar becomes hit and gets hold of the market, its probably not
going to run like Sholay. It will be over quickly. The market doesn't go
up in a straight line, there are ups & downs along the way. It may not
start going back, up right away, but sooner or later it will turn back
upward.

So how do you defeat the Gabbar (Bear Market)?

By investing for the Long Term

Bryan Oslon has righly written "Imagine a cross-country car race that
starts in downtown Manhattan during rush hour. One racer sees bicycle
messengers speeding by in the stop-and-go traffic. Becoming impatient,
he jumps out of his car, trading it for a bicycle. Once out of
Manhattan, as other racers still in their cars pass him, he quickly
realizes his short-term decision was unwise in light of his long-term
goal of winning the race. It may seem rather silly for this racer to
trade in his car for a bike, yet investors do the same thing every day.
They lose sight of the strategy that it will take to get their prize.
Although many investors claim to understand the benefits of long-term
investing, their actions often show a short-term focus".

How so ever menacing the bear market might turn into, Long-term
investment strategy only will triumph over Gabbar.

So stop predicting the arrival of Gabbar, there's still lot of Aag in
the market, which will continue burning.

Happy Investing!

Buy AVT Natural Products

Buy AVT Natural Products for a short term target of 118 and a long term target of 140. Current market price: 92 (as on 28th Sep'07). As markets are at all time highs, if markets correct on monday or the next week, it would be a great time to buy this stock on dips.

AVT Natural Products Ltd (AVT NPL) is a venture promoted by Mr.Ajit Thomas, as a strategic diversification from the traditional plantation business. Operating in line with its corporate signature, they are specialized in the extraction of colours and flavours from natural source.

(News on Sep 29th) - AVT Natural commences Marigold flower processing unit in Heilongjiang Province of North East China. The new plant of Heilongjiang AVT Bio-Products Ltd was dedicated to the globe last week by the Chairman of AVT NPL, Ajit Thomas. AVT NPL manages marigold contract farming operation in Southern India. Marigolds are the primary raw materials for the manufacture of Lutein.

At present, China accounts for 50 per cent share of the world marigold market of an estimated $50 million, while India holds 25 to 30 per cent and the balance by Peru. AVT NPL is the leader in the country with 70 per cent of the market share.

The company also has a strategic alliance with Kemin Foods L.C, USA, which has the patent for Lutein extracted from marigold for using in neutraceuticals. The market for this product is growing at 20 per cent a year and AVT is the sole supplier of the raw material to the US Company.

AVT Natural is the world's largest exporter of Marigold oleoresins.

In Vanilla , they are one of the largest exporters of cured vanilla beans cultivated in their own estates.

Overall looks to be a good and a safe buy at cmp. One can buy this stock and hold it, target of 118 will be achieved 99.99% sure. Just buy and hold.