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Don't panic: FM to investors

Source: PTI
Last updated on: October 23, 2008 15:50 IST
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Finance Minister P Chidambaram on Thursday advised investors in equity markets to take informed decisions and not to act in panic.

"There is no reason for Indian market to go down just because the eastern markets are down. Nobody should sell in panic," he said.

The finance minister also said that the Securities and Exchange Board of India is addressing the issue of stock lending by FIIs to overseas entities. The lending of stocks by FIIs to overseas entities is likely to be reversed in the next few days.

"Sebi has told them (FIIs) now that it disapproves of lending to offshore entities, and asked them to reverse those transactions. I am told that those transactions are likely to be reversed over the next few days," Chidambaram told reporters.

He said the market regulator has found this use of window by FIIs inappropriate and is addressing the issue.

Earlier this week, Sebi had said it disapproved stock lending of FIIs to overseas entities and warned of stronger action against such practice, if so needed.

"Sebi disapproves of the overseas lending/borrowing activity of FIls and the consequent selling pressure in the cash market in India. Sebi has communicated its disapproval to FIls.

The lending/borrowing activity of FIls is being monitored and if necessary stronger measures will be taken by Sebi as considered appropriate," the market regulator had said.

Sebi had asked custodians to communicate to their foreign institutional investors the disapproval of Sebi in this regard.

Sebi had last week asked FIIs and their agents to provide information on the quantity of participatory notes they have issued to overseas entities which could be used like short sale. 
 
The finance minister admitted that inflation is still high, but said that it is likely to come down to 9-10 per cent levels by December.

On the fall in rupee value, he said, capital is going out of the country because there is redemption pressure on FIIs back home.

Once these pressure eases, money will flow into the country in the form of ECB, FCNR, NRE.

"I am sure once pressure on FIIs ease, FIIs will also bring in money to invest in corporate and government debt market," the minister said.

FM sees brisk lending activity ahead

With pressure on liquidity easing, Chidambaram expressed the hope that lending activity will become liberal as banks have been advised not to park surplus funds with RBI.

"As you perhaps know, I called the chairmen of the seven largest PSU banks on Monday and advised them that we should lend now. All have said that lending will begin aggressively because now liquidity position is comfortable. I hope that message will go down," he said.

He hoped that the temporary freeze on credit that was noticed in the first half of this month would go and brisk lending would take place.

"If you go by reverse repo, I think there is adequate liquidity. The point is banks should not park their excess funds with RBI and should lend."

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