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Star manager test case as regulator turns eye offshore

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A bull run in the Indian stock market is usually cut short by a scam, and then a collapse. Yet, this time the market regulator seemed determined to check market abuse even as the Bombay Stock Exchange Sensex index climbed close to the 4000 mark.

Last month the Securities and Exchange Board of India (Sebi) barred Samir Arora, ex-head of Asian emerging markets equity at Alliance Capital, from the stock market alleging breach of fiduciary trust and violation of takeover rules.

Sebi has also tightened surveillance of foreign portfolio investment, which has fuelled the current upswing. Sebi directed foreign institutional investors (FIIs) registered in India to make detailed fortnightly disclosures on offshore derivative contracts such as participatory notes (P notes) that are written on underlying Indian securities. The regulator suspects the notes are used by some Indian firms to launder money, as well as by hedge funds that are not allowed to invest in India.

Soaring Sensex The Sensex scarcely missed a step, crossing 4000 on August 19, up over 20% this year. Foreign investors have invested $2.9 billion into the Indian equity and debt markets this year. According to Emerging Portfolio Fund Research, global emerging market equity funds are overweighting India, Brazil and Thailand to outperform the benchmark MSCI-Emerging Market Funds (MSCI-EMF).

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