Permit buyback

Wednesday's late rally on the bourses was fuelled by rumours that the government was about to impose a ban on short sales, and an announcement allowing share buybacks was in the offing. The government urgently needs to do one of these things, while avoiding the other. Banning short sales will merely lead to a drying-up of liquidity in the market. The finance minister's hunt for a bear cartel, and concern about the involvement of FIIs appears unwarranted. The fact is that during the week ended October 13, outstanding short positions in the market rose by about Rs 154 crore, while outstanding long positions went up by Rs 27 crore during the same period. But that information hardly points to the involvement of a bear cartel. If the country's largest fund is reported to have decided to sell a chunk of its holdings, every investor will be well advised to sell short. To be sure, mutual funds are not allowed to sell short, and any fund caught infringing this regulation must be punished. But with the FIIs holdinglarge amounts of stocks, which they can easily offload, and knowing well that allegations of short-selling would be fully investigated, it would take a very foolish FII to sell short. FII sales have been around Rs 350 crore in the past week, showing that there has been a lot of delivery-based sales. With world-wide redemptions, it is hardly surprising that FIIs are selling.

There is a lot of value in buying at current prices. For several stocks, the dividend yield alone is attractive. The government must trigger a change in sentiment. For that to happen, announcing a buyback is essential, and the government must make known its concrete plans on how it proposes to kickstart the economy and where it will get the funds for doing this. Much has been talked on this account, but action has been absent.

Top

Printer-friendly page