The former Lok Sabha MP from Mumbai North East has blamed the finance minister and the stock market regulator, the Securities and Exchange Board of India, for the market hitting a lower circuit on October 17 and the subsequent recovery after the FM's statement.
To prove his point, Somaiya said, he is going to file a complaint against the FM and Sebi with the Chief Vigilance Commissioner, the Comptroller and Auditor General and Sebi itself.
What's happening in the Indian stock markets?
We feel that it is not only irresponsible behaviour of Sebi and the finance ministry but also a motivated move to create confusion among investors. What gives credence to this is the immediate clarification issued by Finance Minister P Chidambaram after the market crashed and hit a lower circuit as soon as the markets opened for trade on Wednesday.
On October 16 Sebi made a categorical statement that Overseas Derivative Instruments (where the underlying asset is the futures and options of Indian market) through the participatory note (an instrument just like stocks that foreign institutional investors issue to overseas investors wanting to remain anonymous and yet invest in Indian stock markets) should be over within 90 days with no allowance for renewals or issuance of fresh ODIs via the PN route.
Now everybody knows that ODI instruments have a maximum expiry period of 90 days (in India the futures and options positions have to expire within 90 days). After 90 days the PN route will be allowed in the Indian capital market. But abuse of PN route for ODI will be banned. That was the meaning of the earlier circular, which was changed later on October 17 (after the market crash).
Due to this, on October 17 there was so much panic leading to the market hitting a lower circuit immediately after opening. After which Sebi came out with a clarification at noon (some media reports suggest the SEBI clarification came out at 10.55 am, soon after the FM's statement at 10.30 am).
The clarification stated that the first paragraph of the earlier circular was redrafted stating that renewal of PNs will be allowed and ODIs will be continued for the next 18 months during which time these instruments could be squared off.
What does this dillydallying convey to ordinary investors? Isn't it surprising that Sebi took this decision to redraft the first paragraph of its earlier circular in just a couple of minutes after the FM's statement? If Sebi can work with such great speed, why didn't this announcement come before the markets started trading on October 17?
This means that Sebi is playing with the sentiment and money of investors and the FM was on TV channels at 10.30 am making statements that the FIIs were buying shares in the Indian capital markets.
What we would like to know from the FM is that at 10.30 am, when trading was suspended due to circuit breaker, how did he come to know that FIIs were buying shares? Were FIIs buying in the grey market of which the FM had knowledge? Or is it that the FM authorised and sensitised the grey market operation?
Does this mean the FM has insider information? Or it is a breach of Sebi's guideline on fair trade practices. And if he had lied about FIIs buying during the market suspension, then also it is unfair trade practice.
You are saying that the FM had a role in what happened in the markets yesterday?
Yes, of course, and I have decided to file an official complaint against the FM and Sebi on Monday with the Chief Vigilance Commissioner, the Comptroller and Auditor General of India, and with Sebi, the last being the stock market regulator.
To prove my point I am going to annexe the first and the second redrafted circular that Sebi issued. How can the FM make such statements on a day when the markets have hit a lower circuit on both NSE and BSE?
However, let me point out that this is not the first time the FM has done this. Whenever similar things happened in the past the FM would be on TV making such statements to talk up the markets. He could have made this statement earlier as well because the SEBI news was all over the morning newspapers.
Was he waiting for the market to crash and then make a statement at around 10.30 am that day? These are the issues we will be addressing in our complaint against the FM and Sebi.
Do you think that PNs as an instrument are widely abused in the Indian capital markets?
We have been demanding transparency in the issuance of PNs from the last three years. The Tarapore Committee, the Lahiri Committee and Reserve Bank of India have all demanded more transparency on investments via the PN route.
Only eight days back the Sebi chief M Damodaran made a statement that money through the PN route was welcome. In this scenario how does one make sense of Sebi's urgency to come out with a statement like this on Tuesday that PNs would be banned?
Nobody has asked to ban investments via the PN route. We just want more transparency. Then why this urgency to ban money coming in through the PN route?
All these people (RBI, Tarapore and Lahiri Committes) believed the PN route was being abused by company promoters to increase stake in their own companies through the backdoor, drug mafia and terror funds. The demand was to stop this abuse, not the PNs itself.
In the last two months PNs have been abused extensively to take exposure in ODIs. While the Sensex took 17 years to move from 1,000 to 15,000 points, it took 100 days to cross 4,000 points more. Now every one week it is moving up by 1,000 points.
So, is it not the duty of the regulator to find out why it is happening and what is happening? Everybody knows it is the abuse of PN route through ODIs. Out of all the money that has entered the Indian markets in the last two months, 95 per cent has come in through ODIs.
As a result you are allowing anonymous money to make speculative purchases in the capital markets thereby destabilising it. It is senseless on Sebi's part to first ask for banning PNs through the ODI route and then allowing them in a clarification issued on the very next day.
What should small investors do in such a situation?
Small investors should know that heavy speculation is taking place in the Indian markets and considering the extreme volatility in the recent past they should stay away from speculating in the market.
Each and every investor should look at her/his portfolio and make a conscious decision to book profits in this market. Surely, this is not the market for new investors to come in.
Do you think the BJP should demand a parliamentary inquiry into what happened in the stock markets?
Yes. The BJP is going to demand an inquiry as well as I have asked the finance committee of Parliament to take up this issue.
Do you think that the charges you are levelling against the FM will stick considering his clean image?
Everybody knows that Chidambaram's mentality is that of a 'teji ka khiladi' (a bull operator). It is not the business of the country's FM to come on TV every time the stock market crashes.
But why would he want to create a situation wherein the Sensex would crash?
That is the next point I am going to include in my complaint. Who benefited from the market crash yesterday? How come the FM knew that FIIs were buying?
But how does the FM benefit from this?
Only the FM will be able to tell this.
Some media reports suggest that the Indian economy is likely to slow down. Then isn't the Sensex's upward move going against what is happening in the real economy?
Keep in mind one thing, that whatever happens in the capital market has got nothing to do with the real economy.
The economy is going ahead at 8 per cent per annum and the capital markets are going up by 800 per cent. There is a total mismatch between the real and the financial economy here. If this has to stop, then high level of speculation will have to be curtailed and the abuse of PNs must be stopped immediately.
Even Sebi had come out with a report a few months back about the abuse of PN route reaching alarming proportions.
