post on 5th sept 06

uesday, September 05, 2006

Market Matrix – Forex convertibility and participatory notes – 5 Sep 2006

By krsna Khandelwal – A Stock Market Vedic Theory proponent

The RBI has further acted upon the forex front and has given the road map for the eventual forex convertibility. Since this is major reform and has called for substantial groundwork, it has been welcomed by the markets in the like spirit. There is however, a disturbing fact emerging and it is the fact that PN (participatory notes) have been responsible for a big chunk of inward money flow in to the stock market. Since the route to find out the real persons behind the PN is not open and the identity of the investors may of dubious nature, the RBI has wanted to curb this practice. The needle of suspicion points towards domestic wrong doers, they may be the smugglers, corrupt politicians and may be big businesspersons who have avoided tax and want to stash away some money in safe havens. Until the time when the dollar used to appreciate it was alright to keep money in dollar denominated investments but lately the trend has been such that it is wise to make money in Indian markets and not suffer on account of weaker dollar. This scene perfectly fits in to the logical theme of lot of people bringing money through PN route. This is serious by any standard and has to be dealt with firmly, let us hope some thing is done by the govt. and let us hope that the creekers and thieves do not have any kinship.

The movement in indices has suddenly become slightly skewed, the premium on calls and puts has behaved not in exact line with underlying securities movement, and this may be precursor to unfolding of some dramatic scene. This time is to sit pretty and wait for guidance available after the initial half yearly result early next month. Around this time in the year, the money market is usually tight but that does not seem to be the case in this year. Buying cheap and selling dear has been the layman’s ‘mantra’ and should be followed in the present time, meaning thereby not to go for fancy PE stocks and book profits which come your way without any apparent logic.

Hari Om