FII margins -- Mehta now sings different tune

FII margins -- Mehta now sings different tune

HONG KONG/MUMBAI, FEB 23: The Securities and Exchange Board of India (Sebi) chairman D R Mehta today said it would not be possible to bring foreign institutional investors (FIIs) under the existing general margin system, but hinted that volatality margins could be imposed on them in the near future.

However, an internal committee of SEBI has been constituted to go into the details of collecting volatality margins from FIIs, he said, experts in the field would also be invited to give their inputs on the issue.

He said FIIs could not be treated on par with Indian investors since they are not generally speculators. "But if we impose margin on them, they will ask for equal treatment with general investors and than can lead to speculation," he added.

Currently, trades by Indian and foreign institutional investors are excluded from the various margin system. There are three margins being imposed on the brokers namely volatality margin, cross-exposure margin and mark-to-market margins. Volatality margin is calculated by taking the average of six weeks' price movement in scrips and exchanges fix the margin depending on the situation.

Mehta, who was given an extention of two more years at the helm of Sebi said that according to the latest figures all the stock exchanges together collect something between Rs 6,500 to Rs 7,000 crore per day as margins and this system has made the Indian stock market crash proof.

He ruled out any chances of a market crash but added that if it all there were something, it would be very minor ones. Mehta said the international investment community was so bullish on India that western journals, which generally try to downgrade India, have of late begun coming out with very positive articles. Top Jardine Fleming officials, including its chairman, whom he met in the morning were highly bullish on the Indian market, he said, adding, this makes one feel happy about to work for the market regulator.

FII INFLOWS ZOOM: Net investments by foreign institutional investors (FIIs) have crossed the $ 500 million mark in the current month, which translates into the largest inflow in the last one year in a single month. The renewed interest in the Indian markets has also attracted fresh FII registrations taking the total to 503 to date. In local currency, the net investments translate into a whopping Rs 2,307 crore, with nearly half of this amount coming in in the last four trading sessions.

On Monday, the net FII investments were Rs 443 crore with the total turnover for the day close to Rs 1200 crore. The surge in the dollar inflows largely explains the relentless rise in a host of IT stocks led by Wipro whose market cap has already crossed the Rs 200,000 crore mark. There has been a remarkable shift in the pattern of FII investments. The Indian markets have attracted in just 15 trading sessions during February 2000 a third of what it had received during the entire calender 1999. During 1999 the net inflows were Rs 6,900 crore while in February so far, the net investments in equities have been Rs 2,307 crore.

The rise in FII inflows comes ahead of the Union Budget, taking the Sensex past the 6000 mark. A unique feature of FII investments in February is the fact that the net inflows have been positive on all the days. The gross purchases and sales added up to Rs 13,000 crore so far in the month.