The Communist Party of India (Marxist), which has forced the centre to put on hold the nuclear deal, would now make its stand clear on the role of Participatory Notes (PNs) in Indian capital markets. CPM would release a comprehensive paper in this matter on Friday in New Delhi. This would be a maiden statement from CPM on the highly volatile issue of PNs.
Sources told FE, ?The CPM is not in favour of a complete ban on PNs, but will certainly make a strong case for its regulation by the Securities and Exchange Board of India (Sebi). Sebi chairman M Damodaran’s move; aimed at prohibiting sub accounts from issuing PNs, will help make the system more efficient and transparent. The country must know the source of funds that are entering the market, and thus Sebi can work out some regulations?. Sources reiterated that CPM is not keen to ban PNs.
The CPM’s move to bring out a statement on PNs is crucial, after the 30-share Sensex of the Bombay Stock Exchange (BSE) swung like a yo yo on Wednesday, after Sebi’s Tuesday night proposal to clamp down PNs, to restrict foreign inflows. However, with clarity emerging on Sebi’s proposal from Damodaran and the finance minister P Chidambaram’s statements, the Sensex reversed its trend and witnessed its highest ever single day recovery of more than 1,500 points on Wednesday. However, it once again tanked on Thursday with intra-day movements of over 1,400 points, and closed with a 50% recovery from the day’s low, to end the day with a loss of 717 points.
The CPM in the past had said that the recent crash in the stock market and the volatility being witnessed since then, underline the power that FIIs have come to wield in the capital market. Unmindful of the damage that can be caused to the economy by large scale capital flight, the UPA government has gone to the extent of suggesting full capital account convertibility (CAC), which does not find any mention in the National Common Minimum Programme (NCMP).