The existing restriction on short selling by Sebi is being replaced with additional volatility margins from Monday. The daily price band has been reduced from the current level of 10 per cent to 8 per cent, while the weekly price band of 25 per cent has been replaced by a graded margin system with rates ranging from 5 per cent to 40 per cent. The margins will apply for all positions in the cash and carryforward markets. The margins apply to all exchanges across the country. The additional margin of 10 per cent levied at the end of a day's sale position would continue to be levied till July 15.

The lifting of the ban on short sales is likely to bring in positive improvement in the market. Earlier, the ban had aimed at preventing a bear raidaided by the lacunae in the trading rules. This has now been rectified with the graded margins.

While the new rules provide for an exit route, it also encourages traders to take a position to go long. In turn, this would allow them to short sell as well, thus leveraging between the down and upside opportunities, as they arise.

While these rules ensure market integrity, they cannot change the direction of the market. The direction of the market is clear to most of the investors. It is headed south and for valid reasons. The market scene has already confirmed this bearish view. While the low volumes and turnover at the two bourses (BSE and NSE) in the week that just ended could be attributed to the trading restrictions, there was no mistaking the selling pressure by FIIs felt in select counters.

On Thursday, as per the figures released by the NSE, FIIs bought stocks worth Rs 12.76 crore, while they sold stocks worth Rs 45.61 crore. Even local institutions are reported to have sold. FII purchases wereselective in counters like HLL and software scrips like Satyam Computers and Pentafour Software. FIIs have also been attracted towards pharma counters. While the buying in HLL cheered marketmen, the same FIIs turned jittery the next day after news of renewed political convulsions in West Asia broke in. While FII buying in HLL was welcome news, one must also note that it was very selective and into defensive stocks. But, apart from this action, the traders who took the initiative in the last rally turned nervous and preferred to stay away. The chances are that they would not go long in the coming weeks.

The budget session of the parliament has now begun starting this Friday, after a three-week holiday. The government is slated to take up at the opening, four ordinances for adoption before moving on to the Finance Bill and the Railway Budget. The ordinances are the Finance (Amendment) Ordinance, 1998, the Lotteries (Regulation) Ordinance, 1998, the Essential Commodities (Amendment) Ordinance, 1998, the HighCourt and the Supreme Court Judges (Conditions of Service) Amendment Ordinance, 1998.

The four ordinances which were promulgated by the UF government will lapse if they are not passed before July 7. But the real fireworks will start when the parliament takes up the Finance Bill.

Let us see what is in store next week.

The main and immediate worry for the BJP government is its impasse on the AIADMK. What Jayalalitha and her allies can and would do during the budget session remains rather speculative. While AIADMK may not pull out its support to the BJP, the stock investor cannot take for granted that the party will not abstain from the budget session.

And while the Congress-I does not wish to be seen as proactive in pulling the government down, they have also clearly stated that they are under no compulsion to support the present government.

The Yadav faction is significant in numbers but Congress-I would rather wait to see this faction roping in more allies before it forms its strategy to pull downthe BJP government. Also the Congress-I needs time to consolidate its own party organisation. October-November could be a reasonable target for such a strategy to take shape. But that does not mean BJP will be spared right now. All the opposition parties are ready to harass the party on its approach and shortcomings in the management of social, economic and foreign policy issues. On the Finance Bill itself there could be several cut motions. Normally, cut motions end up in the ruling party compromising on the issue. But one can easily foresee a number of cut motions being tabled. All these will unsettle the stock market sentiment day after day, while the debate is on. With such a background, traders and FIIs would see no reason to commit funds to the market in a big way until the clouds clear. Sure there would be opportunities in panic bottoms, but that attraction is minimal in the emerging scenario.

Adding to the uncertainty is the feeling in some quarters of the BJP, who are prepared for the governmentbeing voted out in the budget session. The investor must carefully note that the political turmoil is intense and BJP may indeed welcome the opportunity of going back to the voters to get a clearer mandate. Such concerns would weigh heavily on the marketmen. This would result in exerting a direct downside pressure on stock prices. The proposed system of margins is unlikely to be a handicap, as such margins can be soon collected as profits in the bear phase that is likely to emerge. The only negative factor is that no one can predict where the bottom could be right now. It could be 2,800 or 2,200!

Thus, there is only one thing left to do. Get ready with your short-sale list and figure out the bottoms. There is money to be made. And surely we can see the sign already on Friday.