A day after market regulator Securities and Exchange Board of India tightened norms for participatory notes, the government said on Friday it was too early to assess the impact but favoured steps that control capital flows without hurting investment.
"I have said one of the concerns is very sharp increase in capital flows. Without hurting investments, we will like to take some measures to moderate the inflows. Some measures have been taken by Sebi. We will have to wait and see what impact do they have," Finance Minister P Chidambaram told reporters.
However, Chidambaram refused to answer repeated queries on whether RBI or the government would take some more steps to moderate capital flows. When asked about a surge in the stock markets, the finance minister said: "We cannot take stock (of situation)
The benchmark equity index Sensex regained the 19,000 level today on brisk buying activity. The idea of Sebi's move on P-Notes was to moderate capital flows. As a by-product, Sebi also achieved the objective of greater transparency, said Chidambaram.
Sebi on Thursday announced new rules that prohibit FIIs and their sub-accounts from issuing fresh derivatives-based P-Notes and require them to wind up current positions in 18 months. It also imposed curbs on PNs in the spot markets by limiting them to 40 per cent of assets under custody of FIIs.
Besides, Sebi made registration of FIIs and their sub-accounts permanent and they would not have to renew it after every three years as is the case now. The market regulator also allowed unregulated pension funds, education funds and others to register as FIIs.
