Tuesday, 28 October 2008

Falling market makes stocks cheaper than Diwali snack

In yet another attempt to salvage a sinking stock market, market regulator SEBI has made it easier for promoters with over 55% stake in companies to increase their holdings through creeping acquisition. However, though stock prices are at their extreme lows, it’s unclear how many promoters would use this opportunity, given the liquidity crunch and turmoil in financial markets.

SEBI has now allowed promoters to buy up to 5% stake every year to increase their holdings up to 75%. In order to ensure that such buying is reflected in the stock prices and provides an opportunity for retail investors to exit, the regulator said that such share purchases should be in the open market. “This is aimed at bringing in the promoters as natural buyers. In the absence of buyers, even a small offloading by FIIs is difficult for the market to absorb,” said a senior investment banker.

Also, promoters are automatically exempt from SEBI regulations for a 5% increase in stake annually as a result of a buyback by the company. This again will make it easier for companies to carry out stock buyback.

SEBI announced the relaxation on Monday, when the Sensex broke yet another psychological level, slipping below the 8,000-mark intra-day before recouping a major portion of losses. The rupee dipped below Rs 50 a dollar intra-day, but closed higher following RBI intervention and dollar selling by a large US bank. The Sensex plunged to a three-year low of 7,697.39, before bouncing back to close the day at 8,509.56, down 191.51 points, or 2%, from the previous close.

The 50-share Nifty closed at 2524.20, down 59.80 points, or 2.3%, from the previous close. Bears were clearly unruffled by reports that the regulator was analysing data to find out attempts to hammer down prices. It is also becoming obvious by now that the ban on overseas lending of Indian shares by FIIs is not having the desired impact. As per provisional data, FIIs pulled out a net Rs 1,027 crore on Monday. However, the only silver lining is that domestic institutions still appear to be flush with funds: they bought shares worth Rs 916 crore net on Monday.

Source: EconomicTimes

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DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.