Foreigners Misuse PN Route to Short….and Indians get shorted !

Is our Government and the Regulatory Authorities,RBI and SEBI working for the FIIs !?…at our expense…surely looks like it !

Just Look at some of the SEBI released figures on outstanding position of shares lent by FIIs for selling…the aggregate outstanding Participatory Note based lending position as on October 8,2008 was Rs 6493 crs across 224 stocks if you assign Prices as of this date

However the shorting  build up began even earlier…before October…The Sensex itself opened in October at 13056 and has been down hill since then…This would mean that the real value of Short sells by FIIs is over Rs 10000 crs…closer to US $ 3 Billion…some of this position may yet be open…which means short covering will lead to pull back rallies like we saw on Friday

Clearly on short covering,some of it yet remains to be done,the Profits have been in excess of US $ One Billion !…It’s an October Orchestration,facilitated by SEBI, which one can be awestruck and marvel in scale but shame at in it’s immorality,unethicality and even illegality 

I’ve taken the October 27,2008 Sensex Closing Low of 8510 to make a point  to show the extent of the Gains made on Short Covering   

Sensex

 

11328

 

8510

 24.9 %

Scrip

No of Shares

Lend

Price as on Oct 8,2008

Value in Rs Crs

Price as on Oct 27,2008

% Fall in Price

HDFC

3560323

1888

672

1461

22.6

ICICI Bank

12710276

454

577

316

30.4

RIL

2145092

1649

354

1075

34.8

L & T

3573799

967

345

724

25.1

Axis Bank

4668781

648

302

538

17

Tata Steel

8865766

338

300

169

50

Bharti Airtel

4070404

733

299

566

22.8

Reliance Capital

2765347

938

260

568

39.4

Infosys

2061118

1254

259

1252

0.2

Reliance Communication

8153350

299

244

200

33.1

Top 10 Stocks

 

 

3612

 

 

Other 214 Stocks

 

 

2881

 

 

Total of 224 Stocks

 

 

6493

 

 

If You recall that RBI had a year ago made a startling revelation that most of the FII Inflows ,75% of them, were actually Hot Money

Now with SEBI yet going soft on Participatory Notes,although it had imposed restrictions under moral pressure,  it yet allows anybody,even those Indians,with concealed loot in Swiss Banks,to play India through Registered FIIs,without the need to have their identity disclosed

FII’s have even perfected the misuse of such PNs to capitalise on lax Indian laws and regulation…Shares Held by Them in one Sub Account under PN are lend to another to sell…The Borrower later buys these shares back at lower rates,as in these times,from the Indian Markets and returns them to the Lender…making a cool difference without actually owning the shares and paying just the rental for them or possibly a part of the profits made…and moreover these gains are not subject to or hardly subject to taxes as the entities reside in tax havens

So FIIs are allowed

  • this lending Operations through PN Routes
  • Tax Free Gains

Indian Investors do not have the benefit to either…and have to face the reality of a Capitulated Indian market that shrinks their portfolio Value significantly..Oh ! they can hedge using Futures and Options,but are subject to Margins and Taxes on Derivative Gains

So why has the Government and SEBI allowing all of this ?

The Answer stares at you in the Face…..In all Likelihood the ultimate beneficiaries of the FII Sub accounts and PN Notes are Indian Industrialists,Politicians,Bureacrats and Brokers themselves who are simply rotating some of their ill gotten wealth stored in Swiss banks…with the tax free status adding insult to injury to Indian Retail Investors…Checkout an earlier Blog of October 15,2008,  which comments on the Swiss Bank Association Report of 2006 revealing that Indians had stashed away US $ 1456 Billion in their Banks,the highest from any nation

With such blatant mischief,misuse,manipulation and  malfeasance  It is therefore not surprising that someone has the guts to take the Union Government,RBI and SEBI to court

The Kerala High Court has admitted the petition of Trueway Financial Services Pvt Ltd,a Thrissur based authorised share dealer, and has issued notices to the Union Government,RBI and SEBI to explain why a December 2007 circular was issued in ‘unholy’ haste by RBI which went against the SEBI Guidelines and policies framed by the Central Government.Foreign Investments were protected at the cost of the Small and Retail Investor.       

Where Money is…there will be Stink !

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