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Media enquiries
should be directed to: (Please use this contact for
media enquiries only ).
Dr. Pragnya Ram
Group Executive President
Corporate Communications
Aditya Birla Management Corporation Limited
Aditya Birla Centre
1st Floor, 'C' Wing
S.K. Ahire Marg
Worli
Mumbai 400 030.
telephone:
91-22-6652 5000 /
2499 5000
fax:
91-22-6652 5741/ 42
email: pragnya.ram@adityabirla.com
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| media
> press reports |
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A.
Balasubramanian
CIO, Birla Sun Life Mutual Fund
Business Standard
20 February 2008
The
recent move of the Securities and Exchange Board
of India (Sebi) to allow short-selling of stocks
by all market participants after a seven-year ban
comes as a welcome move. Unlike ten years ago, when
a handful of foreign institutional investors (FIls)
and domestic institutions could heavily influence
price movement, today we have over 1,000 registered
FIIs, several mutual funds and insurance companies
along with other traditional domestic institutions.
This has allayed past fear of bear cartels causing
market distortions and instilled confidence to re-introduce
short-selling in the cash segment.
Along
with bringing the Indian stock markets at par with
advanced markets, Sebi's move ushers in a better
price-discovery process. This would deepen the markets
further by enabling wider participation and add
new instruments. It also opens an avenue for long-term
investors to participate in lending of shares. From
a fund
management perspective, this needs to be handled
properly in ensuring that it provides additional
return on the portfolio. At the same time, simple
shorting the market is as good as taking a call
on the valuation of a company or sentiment in the
market or pure hedging. At times, pure short-selling
can also backfire, if it is not backed by the strategy
of simple hedging, wherein the loss could be unlimited.
Therefore, simple short-selling could also depend
upon the fund manager's view as they do it while
going long on the stock.
Typically, investors resort to short-selling based
on current valuation, with an intention to buy back
when the stock corrects. Traders also look to arbitrage
between the cash and the futures market. For instance,
if the spot price of a stock is higher than the
futures market, they short the stock and buy in
the futures market. This cannot be done at present
though the reverse of this, which is a simple arbitrage,
is possible, that is, buy in cash and short the
futures. The lack of short-selling in the cash market
also perhaps explains the immense popularity of
stock futures, where short-selling is permitted.
This has often led to the cash market taking signals
from the futures market. However, Sebi's move should
remove this anomaly by permitting short-sales. The
move is expected to make the markets more efficient
by presenting proper arbitrage opportunities between
the cash and the futures markets. Arbitrage funds
that buy stocks in the cash market and sell in the
futures market will now be in a position to reverse
arbitrage in a bearish market and help true price
discovery.
To ease the process, the market regulator will roll
out a securities lending and borrowing mechanism
(SLB) that will work on an automated, screen-based,
order-matching platform to be provided by authorised
intermediaries. To begin with, the securities traded
in the futures and options segment will be eligible
for short-sales.
Essentially, short-selling is a tool for traders
and arbitrageurs looking for opportunities in prices.
Look for short selling, only if you feel the stock
has run far ahead of its right valuation.
| The
rules of shorting |
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Both
retail and institutional inventors allowed
to short-sell |
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Short-sales,
without any back up, not permitted |
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Securities
in future and options segment to be
eligible for short-selling |
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A
securities lending and borrowing (SLB)
scheme to be made operational |
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SLBs
to take place on automated, screen-based,
order-matching platform of authorised
intermediaries |
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Institutional
investors to be debarred from day trading |
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