Soon, short selling (the strategy of selling a stock without actu- ally owning it) will become a reality for institutional players like Foreign Institutional Investors (FIIs) and mutual funds as they have long since craved for a level playing field (with retail investors) and a mechanism to hedge their risk in the spot market; institutional investors, at the moment, can hedge their risk only in the derivatives market. "Allowing MFs to short sell will have a threefold impact. It will deepen the market, will provide better options to find houses to execute their views and strategy and, most importantly, it will offer investors a wider range of products," said Pankaj Razdan, Managing Director, ICICI Prudential AMC. To begin with, the institutional investors would be allowed to go short only on a universe of the same 159 stocks in which derivatives trading is allowed. Another rider is that these large investors also have to pay margin money like retail investors do; institutional investors are exempted from paying margin money in the spot market, so far.
The news has been received well by large investors including hedge funds, the largest users of the short-selling approach, as well. Sebi's intention to move towards introducing a system that allows short selling is good because it will create more liquidity and deepen the market.
While India has emerged as the favorite destination for FIIs, they will get that extra fizz with Sebi opening the doors for short selling. Apart from them, even the domestic retail investors are likely to get the benefit of carrying forward the short position, which was hitherto not offered to them. As of now, they have to square up the trade (by buying the equivalent amount of share sold on the same day). While it sounds great, there are nonetheless some concerns as skeptics feel that institutional short selling will worsen the situation instead of minimizing volatility. |
