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Mumbai, Nov 20 Mutual funds have welcomed SEBI’s amendment enabling domestic fund houses to engage in short-selling and lending and borrowing of securities. But this is only an enabling provision. The SEBI will notify the date from when mutual funds can do short selling. The market regulators had already announced its intentions to allow short selling by institutional investors, but is yet to announce the effective date.

It will allow the mutual funds a two-way arbitrage. “This move will see the coming of age of the Indian mutual fund industry, which is seeing a rather robust growth at this point of time. This also gets our market in line with the global markets, where short selling has been happening for quiet some time now. We welcome this announcement and it will be a delight for the Indian investor”, said Mr Vineet K Vohra, MD, ING Vysya. Mr Jaideep Bhattacharya, Chief Marketing Officer of UTI Asset Management Co, feels that with this now there will be an increase in volumes and more stability in the markets.

Short-selling means when an investor or a trader sells a stock that is not owned by him at the time of the trade. When traders feel that a stock price is headed for a downward stride they short sell. They then buy back these stocks at a lower rate to make fast profits. “Without short-selling, the general tendency is to look for stocks that will rise and just ignore the ones they think are overpriced. In today’s situation it would be good to have some investment researchers and investors seriously hunting for over-priced stocks and seeking to knock them down,” said Mr Dhirendra Kumar of Value Research in a recent report on Valueresearchonline.com.

Fund managers say that, however, they will have to wait to see how much this will affect our markets. “How much this will be put into use is still questionable. We will have to wait and see the framework that SEBI decides to put out”, said Mr R Rajagopal, Chief Investment Officer, DBS Cholamandalam Asset Management.

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