18 Oct 07 P-Notes – Participatory Notes or Panic Notes?
After the market turmoil that it caused, it is appropriate that the term P-Notes, which is an abbrevation for Participatory Notes, be renamed as Panic Notes. Participatory Notes have caused so much Panic even though no drastic action was taken by SEBI yesterday against P-Notes. After all, P-Notes have not been banned by SEBI. P-Notes, which are offshore derivative instruments issued by FII’s or FII sub accounts which are registered with SEBI, have certain inherent benefits attached with them. The primary benefit of using P-Note is that, the entity or organisation using P-Note need not get registered with SEBI. The only necessity for using a PNote is that the entity should be registered with the registrar of companies or an equivalent body / organisation in the country of its orgin. The second advantage of using Participatory Notes lies in the tax front. Presently, the tax authorities can open the files of FII’s even after a period of 5 years after the date on which the actual transaction took place and penalise them. However, in the case of P-Notes, this is not possible. Also, registering as an FII is a tedious and time consuming process. Getting approval is very tough. Hence many foreign institutions take the PNote route to invest in India. The only argument going in favour of the Government and SEBI in particular, in regulating P-Notes is that it can potentially prove to be a serious threat to the country, both politically and economically. For ex: terrorists are said to be using Participatory Notes to pump in money into India to profit from the strong bull run that Indian stock markets are witnessing. The money thus made is likely to be used for financing terrorist activities. Since the origin of the investments is unknown, if P-Notes are used, it is difficult to trace who is investing and how much is being invested. Another reason for SEBI and the finance ministry to come down heavily on Participatory Notes is because SEBI suspects that certain institutions use the Participatory Notes way to artificially rig the share prices. The Indian stock market is likely to be extremely volatile until the dust settles on the Participatory Notes a.k.a Panic Notes issue.
31 May 07 Nifty at ALL TIME HIGH
In a remarkable coincidence, the NIFTY and the DOW JONES hit all time highs today in the midst of a strong global bull run. Markets opened gap up today and were range bound with a downward bias for most part of the day. Suddenly, in the last 1 hour of trading, there was a sudden spike (the 2.30 effect?). Markets are likely to open gap up again tomorrow. Looks like this is a good time for investing in the stock market, globally. However, there are concerns that the market would not be able to absorb the huge new offerings in the primary market.
07 Apr 07 Q4FY2007 IT earnings preview
“The street expectations have toned down considerably in terms of both Q4 performance and the annual guidance for FY2008, and the recent under-performance of the tech stocks indicates that the same has already been factored in the valuations. This essentially means that the negatives have been priced in, leaving limited scope for downside. But positive surprises, especially in terms of higher than expected annual guidance by Infosys, are not ruled out. However, the continued strengthening of the rupee and seasonal weakness in Q1 (due to wage hikes and additional visa related cost) would continue to influence sentiments on tech counters in the short run. We believe that any further weakness would be an opportunity to accumulate the front-line tech stocks and prefer Infosys and TCS.”
With the rupee breaking the Rs.43 per dollar mark, IT companies seem to be operating on very low margins. With stiff competition, companies have not been able to pass on this loss, due to the appreciating rupee, to their customers. Software firsm are already trading at stiff valuations. A bad quarter can send the entire sector and also the entire indian stock market at large into a correction.
Indian stock market – Valuation of large cap IT stocks
