"We have been accused of, I would say, unfairly doing something too suddenly, shocking markets... I don't think it (action on PNs) is really a question of addressing hot money inflow into India and what might happen should all of them leave one morning," Damodaran said at Fortune Global Forum in New Delhi.
Later, he told reporters that controlling capital is not his job.
"What we are attempting to do is to give India and the world, the market that people understand better, that people feel more comfortable investing in, that has more products going forward, better access for all categories of investment, more transparency," he said.
Denying the charges that Sebi's move on PNs came suddenly, he said way back in 2004 February, Sebi regulation on Foreign Institutional Investment said these instruments issued to unregulated entities prior to that time should be wound up five years down the line.
Sebi now wants these PNs to be wound up in 18 months, which gives foreign investors two months more than what was originally intended, Damodaran said.
On sub-accounts of FIIs, he said they were originally intended to bring direct investment into Indian markets. "We found that they have become instruments to facilitate others, bringing them in a non-transparent manner," he said.
He said no regulators anywhere would like to bring non-transparent investment in the market.
"I don't think any regulator wants non-transparent investment in the market. I don't think investors want non-transparent investment. And therefore what we have done is consistent with what we needed to do as mandated by a statute and consistent with long term roadmap to provide more direct and easy route for investment," Damodaran said.
Sebi asked FIIs and their sub-accounts to wind up derivatives-based PNs in 18 months from October 26 and imposed curbs on PNs issued in spot markets.
It also asked FIIs' sub-accounts issuing PNs to directly register as FIIs. All 20 of them have applied to Sebi to do so.
Sebi's draft proposal on P-notes had crashed market by 1,700 points in initial trading on October 17, which recovered after assurances from Finance Minister P Chidambaram.
On market crash, Damodaran said: "I can't explain why markets go up or down. I'll not even attempt that."
On Tuesday in its mid-term monetary review, the Reserve Bank had said managing abundant flow of capital into India is its biggest challenge on domestic front.
India has seen capital flows increase substantially this fiscal. Foreign exchange reserves have risen by 62 billion dollars to 261 billion dollars till October 19, while net foreign institutional investments have crossed 17 billion dollars.
FIIs invested about 8 billion dollars in October alone. Record inflows have also pushed rupee to a nine-year high against the US dollar, hurting exports.