4-Apr-2012 | 4:00 IST | Edited by: Sharmila Maitra

Fears of the implementation of some proposals of General Anti-Avoidance Rules (GAAR) to tax the foreign institutional investors(FIIs) by the Indian government may have weakened the market sentiment. But, investors in many companies still have reason to cheer as their stocks have significantly outperformed the broader market since the announcement of the 2012-13 Budget.

These are those companies in which FIIs do not hold any stakes or own insignificant number of shares.

Since March 16,2012, shares of over 100 such companies have risen between 10% and 56% as against 2.4% fall in the Sensex. The list mostly includes medium and small-cap companies across sectors. In a few cases, the share prices have been driven by company-specific developments.

Moreover in many others, brokers think, that the current uncertainty over how FII investments through P-notes will be treated by the tax authorities, will not affect them badly.

Some brokers, however, feel that the gains are unlikely to sustain as they are driven by sentiment and not by any positive change in fundamentals.

However, some are of the opinion that FII ownership in a particular company could be because of the exit of overseas investors over poor fundamentals, or may be because the promoters might have been buying shares with an intention to eventually delist the shares from the bourses.

 However, additional speculations are that, it might also be possible that some unscrupulous elements in the market may have turned active to take undue advantage of the current uncertainty over GAAR-related issues by speculating shares of companies with low or insignificant FII holding.

The experts however, feel that investors might be buying shares of the companies having low FII holding on the possibility that the stocks would not react sharply even if there is any major FII selling over the GAAR-related concerns. As well as, the momentum in some of these companies, particularly fundamentally weak ones, could have been triggered by abnormal factors and so would be detrimental to the interest of investors at large.

The General Anti-Avoidance Rules

Participatory notes (PNs / P-Notes) are instruments used by investors or hedge funds that are not registered with the SEBI (Securities & Exchange Board of India) to invest in Indian securities. Participatory notes are instruments that derive their value from an underlying financial instrument such as an equity share and, hence, the word, 'derivative instruments'.

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