Participatory notes (PNs) & Volatility in Indian Stock Market

PNs were entering in large volumes and this inflow increased after the federal reserve cut the interest rate on 18th sep 2006 basically to support the American economy.This gave an additional incentives to foreign funds to enter Indian Stock Market by taking PN rout. Due to PNs the Indian Stock Market became volatile and touches the SENSEX at a highest points.

SENSEX rose in a matter of few months from 16000 to 21000 points. The bulls are so optimistic that the SENSEX would even touch 25000 before the end of the fiscal year (March 2008). SEBI(Security Exchange Board of India) and the finance ministry got alarmed at the dizzy raise of the SENSEX and blamed PNs as the major factor for this right.

SEBI wanted all FIIS to register with it and enter the Indian market directly and not take the illegal PNs route. No PNs will be allowed due to this restriction the SENSEX fell nearly 2000 points. The market regulator has at best been a completely watcher of Indian Stock Market.

From 17 to 19 Oct 2007 interesting things in these 3 days in SENSEX were -
Approximate inflow into Indian Equities through PNs
$32.4 Billion
Loss to PNs holders
Rs.10000 crores
Loss in market value of Companies in which holders of PNs held shares
Rs.200000 crores
Total market capitalization of the company
Rs. 2200000 Crore


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