New Delhi, June 14: Revamping of ‘badla’ in the capital market will lead to heavy loss of capitalisation in the next two months besides increasing the volatility and impact costs for larger trades, Federation of Indian Chambers of Commerce Industry (Ficci) said on Thursday, quoting a survey.

“The sudden death of badla financing will precipitate the situation resulting in heavy loss of capitalisation in the next two months. The impact cost of larger trades will be very high making it difficult for larger trades to go through the market and hence volatility will increase,” Ficci in its survey based on opinion of brokers said. Pointing out that the total outstanding position financed through badla had reached almost Rs 7,500 crore, which reflected the confidence of all participants, Ficci said, “The confidence of investors shaken once will take a long time to rebuild.”

Market regulator the Securities and Exchange Board of India (Sebi) had announced banning of all continuous net settlement, including badla, from July 2 onwards.

The chamber said such a ban would create a void on the bourses, whereby majority of actively-traded stocks would become illiquid.

Volumes had already dropped to 20 per cent of the peak volume of January, Ficci said adding it would further reduce the volume as the entire transition would kill the distribution network created by the BSE and NSE. Ficci maintained that there was no point in blaming badla for the recent stock scam, saying, unless market participants behave responsibly, regulators become market savvy and investors become more informed, scandals and scams were likely to recur at regular intervals. Ficci said the badla system, which is over 100 years old, is a unique contribution to financial markets by India and the limitations associated with it had been taken care of.

“The misuse of badla finance is more of a reflection of general financial indiscipline by active players in the Indian economy, lack of understanding of market reality by various authorities and the ignorance of investors by and large.”

It said at the macro-level, one would feel that it would have been worthwhile introducing badla to the global markets.

-- PTI