The Hindu : Business : SEBI plans to allow short selling of shares

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Friday, Sep 23, 2005

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SEBI plans to allow short selling of shares

Proposal to ease restrictions on derivatives trading

NEW YORK: India is planning to ease restrictions on derivatives trading, and is considering allowing investors to sell shares short, Chairman of Securities and Exchange Board of India (SEBI) M. Damodaran said.

The moves come in response to investors' requests, he told a conference in New York on Wednesday.

Within the next few weeks, the regulator is planning to increase the allowed size of derivatives positions, Mr. Damodaran said, and added that this should make it easier for the investors to hedge their positions.

Meanwhile, an advisory committee is looking into the possibility of allowing investors to sell shares short, or bet that shares will fall by borrowing them, selling them, and potentially buying them back later at a lower price.

"I did not want to pre-empt them by announcing this, but I hope the next time I am here for a speech we will be able to talk about this,'' he said in response to a question from the audience.

Permitting investors to short shares would allow stock values to reflect more accurately the opinions of all investors.

The Indian stock market has surged 28.5 per cent this year, and has doubled over the last two years. Foreign capital has helped drive share prices higher, and some are concerned that these investors could leave just as quickly. But the SEBI Chairman said the domestic investors too had been a significant source of demand for shares. Initial public offering activity should remain strong in the coming months, and could include offerings from public sector banks, manufacturing companies, and companies outside India, Mr. Damodaran said.

Banks to tap market

Some bankers and fund managers had expressed concern that the IPO market could lose momentum in the coming months after changes to the way shares were allotted.

But companies were still eager to raise funds. Public sector banks might tap the market in part to raise capital as global capital requirements changed, he said. Meanwhile, Indian manufacturers are reaching the point where they need to raise funds for capital expenditure.

Some Asian companies outside India had also looked into tapping the market, he added. — Reuters

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