The Hindu Business Line : Stocks lent by FIIs among the worst affected in slide

Mumbai, Oct. 31 The stocks in which foreign institutional investors have lent the most quantity of shares overseas are also among the worst affected in the recent stock market slide.

SEBI on Friday issued on its Web site a list of the position of Indian securities lent overseas by FIIs as on October 9, 2008.

But analysts and market watchers are not sure that FII lending in these securities could be in large part responsible for this.

“It is possible that these stocks were just the most actively transacted in the market in every way. If you look at the cumulative volumes lent by FIIs, they form a very small proportion of monthly volumes,” said one broker. However, with some stocks, they do amount to daily volumes on the NSE for some days of the month.

Data Insufficient

It would also be difficult to correlate the volumes lent overseas and the market fall in individual stocks because SEBI figures give the cumulative position as on October 9.

“We don’t know when they were lent to be able to track the scrip’s market value,” said the broker.

A legal expert said there is little correlation for SEBI to ban short selling by FIIs.

SEBI had recently told FIIs to reverse their lending positions and also that it disapproved of such lending and borrowing activity. This itself would deter them, said the legal expert.

SEBI wants FIIs to use the recently introduced securities lending and borrowing mechanism for short selling.

Some other market watchers disagreed that FII lending has a dampening effect here. “The scrips in which FIIs have lent the most have also fallen the most, their activities have certainly created a short selling effect in the Indian market,” said the head of institutional business at a broking firm.

The markets regulator had earlier this month wanted foreign institutional investors and their sub-accounts to report to it the position of Indian securities lent by them overseas. This was to determine if there was any correlation between their lending overseas and selling off of Indian securities domestically, creating the effect of a short-sale here.

SEBI started to post this information twice a week on its Web site. But it wanted the cumulative position as on October 9, which was uploaded on Friday.

Separately, legal experts said it is not possible for SEBI to verify activity by FIIs overseas.