Capital market regulator Securities and Exchange Board of India on Thursday ruled out stopping short-selling as it has no evidence that short-selling is driving the market down, a top official said.
"We don't really have evidence that short-sellers are driving the market down," Sebi Chairman, C B Bhave, told reporters on the sidelines of a conference.
The Sebi chairman said that though some western markets had banned short-selling, their markets had continued to decline further. "Their (financial) institutions failed one after another. Some of them have re-started short-selling in their markets," Bhave said.
Commenting on foreign institutional investors, Bhave said that the regulator has not found any FII having lent any shares off-shore after 'we conveyed our regulatory disapproval to them on the issue.'
"We are trying to look at what is happening to FIIs and why they are sellers on a net basis," Bhave said.
One of the things Sebi has found was that FIIs were purchasing as well as selling so it was not as if they were only sellers, he said.
"But on a net basis, they are sellers. So probably, long-term funds are buying into Indian market as well," the Sebi chairman said.
On the behaviour of the stock-exchanges, Bhave said that it was not possible for Sebi or the stock-exchanges to predict when the market would rise or go down.
On mutual funds, Bhave said that the mutual funds industry was facing a problem of liquidity and that the same liquidity problem was faced by the corporates.
Corporates tried to withdraw money from mutual funds while mutual funds were holding the papers of corporates. "So who
is going to buy if there is not enough liquidity in the market? It was essentially a liquidity crisis," Bhave said.
"We don't yet have any signs that this is a problem of bad investments by mutual funds but this October phenomena has given us a good opportunity to have a relook at our money market mutual funds and the rules that govern them and to the extent that we need to make improvements in these rules," Bhave said.
If funds faced redemption pressure at home or if they needed cash, then they were bound to sell and this was something that was felt by equity markets the world-over, he said.
"Equity can be converted to cash the fastest and so people tend to sell their equity from their portfolio," he said.
"One advantage perhaps a country like India has is that our retail investors are not as leveraged as the retail investors in developed markets. Therefore, we might see some more steady money coming into the Indian market--that is the
silver lining," Bhave said.
Asked on the Sebi-Malaysian Securities Commission partnership, he said that Sebi and the Malaysian entity could work together in some areas.
One of the areas could be cross-listing, he said, where a Malaysian company could seek to raise capital in India and vice-versa.
This way, there will be an access for Malaysian investors to tap Indian companies and Indian investors to tap Malaysian companies.
"So far, our source of capital was from the developed world but now the developing world is also coming into its own. For emerging markets, there is an opportunity to co-operate amongst themselves and diversify its sources of capital," he said.