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‘Smart investors picking up stocks’

C. B. Bhave

NEW DELHI: Painting a rosy picture in the current grim scenario globally, Securities and Exchange Board of India Chairman C. B. Bhave on Friday maintained that India would be among the first few countries to recover the fastest from the ongoing crisis and the interregnum period should be utilised to focus on institutional reforms that would be required to handle bigger markets.

Speaking at the HT Leadership Summit here, the market regulator pointed out that the current global financial meltdown was a crisis in the credit market and not in equity markets and stressed the need for introducing more exchange-traded products to bring about transparency in their transactions.

On the unprecedented slump in the country’s bourses since October, Mr. Bhave made it clear that the recent meltdown was not owing to any market manipulation or a scam. The prime cause was the fact that those FIIs (foreign institutional investors) who had borrowed huge amount of funds for investment were leaving the markets even as long-term investors such as pension funds and retail investors were actually picking up stocks. “We have not found anything in the market that would give us suspicion that something had seriously gone wrong with the market itself,” he said.

Elaborating further, Mr. Bhave noted that only leveraged FIIs such as hedge funds were going out of the market while pension funds and university funds were buying stocks. “Equity is going into the hands of people who have patience,” he said. According to SEBI’s analysis of the market, if four FIIs sold stocks during September 1 to November 14 this year, three others bought them during the same period which indicated minimal net selling.

The net stock sale by FIIs during September 1 to November 14 was worth Rs. 22,000 crore, while the sale by brokers was worth another Rs. 700 crore on proprietary accounts. On the contrary, the net purchase of stocks by mutual funds was worth Rs. 1,000 crore while domestic institutional investors and others, including retail investors, accounted for another Rs. 16,000 crore and Rs. 5,600 crore, respectively.

The market regulator pointed out that smart investors were, in fact, picking up stocks in the current slump. “If you think Indian investors don’t have money, if you think Indian investors are running away, think again. There are some smart guys sitting out there, who think that this market is giving valuations,” he said.

Mr. Bhave, however, had a word of caution for retail and institutional investors. While he warned retail investors against borrowing for investing in equities and advised them to keep aside funds for emergency situations, he also cautioned institutional investors against overleveraging to levels that lead to systemic risks in the market.

“Where the system is getting overleveraged and the risk becomes too great for financial markets, we as regulators must intervene and tell them to bring it down,” he said.

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