The Hindu Business Line : The colour of money?

Mumbai, October 17 Was there an underlying concern over the colour of money flowing into the country that triggered the market regulator’s proposal to curb participatory notes (PNs) issued by foreign institutional investors (FIIs)?

It is the colour of money and it’s “temperature” that is a concern, says economic analyst Mr Pranajoy Guha Thakurta, referring to the quality of funds flowing into the country.

Safe-havens

FIIs who issue the PNs can be registered with the market regulator, but it still is difficult to establish who is behind the institution and who are the real beneficiaries, he pointed out. With “hot money” from the hedge funds, the concern is that it can be taken out as quickly as it was invested in the country, he said.

‘Hot money’ was certainly one of the concerns, agrees Mr Akil Hirani, Managing Partner of Majmudar & Co, since it was driving the market rallies, liquidity etc.

On the quality of the incoming funds, Mr Thakurta told Business Line, it is open knowledge that a large part of the FII inflows into the country is through PNs. But authorities in the country will be able to establish the trail behind them only up to a point. The funds could belong to people of Indian-origin and stashed away in other safe-havens making their way back into the country. Or worse, it could be ill-gotten funds.

Terrorist Outfits

Not too long ago, the National Security Adviser Mr M. K. Narayanan had expressed his apprehension over possible instances of terrorist outfits manipulating the markets.

“Isolated instances of terrorist outfits manipulating the stock markets to raise funds for their operations have been reported. Stock exchanges in Mumbai and Chennai have, on occasions, reported that fictitious or notional companies were engaging in stock market operations,” Mr Narayanan had said addressing the 43rd Conference on Security Policy in Munich, earlier this year.

This, however, had been refuted by the Union Finance Minister, Mr P. Chidambaram, in his statement in the Rajya Sabha on the issue.

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