Let h r khan panel do a thorough job

Let h r khan panel do a thorough job

This is not the time for self-made market panic.

The real world is full of trade-offs. If you want to take your pound of flesh, you will have to spill blood. The timing and the manner of the trade-off matters. Markets regulator Sebi cannot be faulted for wanting to stop round-tripping of Indian capital and money laundering in general. The April circular that has created much disquiet among a section of foreign portfolio investors and market participants aims to prevent Indian black money coming back to India’s stock market after losing its markers of origin in a series of shell company transactions in multiple jurisdictions where the authorities are not fond of asking searching questions to people who bring in money. The aim is laudable enough. However, the means adopted is not. Sebi should give the H R Khan committee it has appointed to look into the matter enough time to formulate a sound policy, and not rush in where angels fear to tread.

The market and the economy are vulnerable on two counts. One, stock market valuations are sky-high, with Sensex price-to-earnings ratio around 25. Valuations are not justified by corporate results but ride on sentiment and liquidity. Two, the rupee is vulnerable. Sudden shocks can send both tumbling and that would hurt the real economy as well. The global economic climate is fraught. Trade wars are one concern. Rising oil prices and geopolitical uncertainty over Iran, and possibly North Korea now that President Donald Trump has declared that things there are not working out quite as he had anticipated, pose another sort of risk. America’s central bank seems determined to reverse quantitative easing through repeated hikes in the policy rate. This makes capital flow back to the US and makes the dollar even more strong. A stronger dollar means a weaker rupee, pricier oil and greater restiveness among consumers, who also happen to be voters.

Sebi and the government should weigh the trade-off carefully. Discriminating against portfolio investments controlled by Indians or People of Indian Origin seems daft. Legitimate Indian private equity arms stationed abroad also get affected.