Though SEBI adopted many other measures in 2007 to streamline the capital markets, it was its decision on P-notes, which gave a jolt to the capital market and evoked extreme reactions both in favour and against the move.

In fact, Bombay Stock Exchange benchmark index, Sensex, crashed 1,700 points after SEBI  proposed curbs on P-notes, but calm returned after Finance Minister P Chidambaram assured that there would be no absolute ban on these tools.

Other measures by Sebi like allowing listed companies with track record to make less disclosures for follow-on issues, permitting discounts for retail investors in public offers and giving green signal for short-selling would also go a long way to bring vibrancy in the market.

Sebi 's steps to introduce new derivative products and initiate proceedings against 20 listed companies for not complying with Clause 49 of the listing agreements, that bind companies to fill at least one-third of their boards with independent directors, would also deepen and bring transparency in the market.

It is this transparency, which prompted the market watchdog to take measures on P-notes, particularly when talks of terrorists using the buoyant stock market were in the air.

In fact, Chidambaram recently said in the Parliament that there was at least one case of alleged terrorist-linked investment in the country's stock market.

In its move, which many said came too suddenly, Sebi proposed to forbid foreign institutional investors (FIIs) and their sub-agents from issuing any fresh P-notes in the derivative market and asked them to wind up their position in 18 months.

Simultaneously, it imposed curbs on P-notes in the spot market. Just four days were given to the public and other stakeholders to give their comments on these far-reaching. SEBI 's proposals, which were implemented in total by the market regulator within days of receiving the comments.

However, the market regulator did not agree to the charges that its move came too suddenly. Sebi chairman M Damodaran said controlling capital is not his job. In short, what the market regulator was doing was aimed at bringing transparency in the capital markets.

Whatever may be the reasons put forward by Sebi, none can deny that its move on P-notes came mainly because of abundant inflow of capital, which pushed up the rupee, hitting exports hard and forcing the government to announce three packages for them this year itself.

Had the rupee not appreciated so fast, there would not have been any curbs on P-notes, according to some analysts. After all, the RBI has been insisting for too long for imposing curbs.

If that be the purpose, the curbs on P-notes have succeeded to an extent. FIIs inflow went up by just Rs 526 crore (Rs 5.26 billion) in one-and-a-half months since curbs on P-notes were imposed, against over 710 crore (Rs 7.10 billion) jump a month on an average in the first 10 months of this year.

Sub-prime crisis has unleashed such forces that returns in the advanced world have dipped. So long as these developments are there, FIIs would keep investing in emerging economies, including India, for better returns-- P-notes or no P-notes.

PTI