Double Edged Sword

The current turmoil in the dalal street is attributed to various factors acting in the stock market.

• Global slowdown theory.
• FII pulling out the money.
• Liquidity crunch due to huge IPOs and oversubscription on top of it.
• Valuations over stretched, with long bull market.

Historically good month for the market "January" has not been so good this time.

Currently on Retail participants are allowed to short sell. The market regulator SEBI( The Securities and Exchange Board of India) had banned short selling by institutional investors in 2001 following a stock scam. Till now, only retail investors are allowed to sell short, which means selling securities that the seller does not hold at the time of trade.

Earlier RBI has allowed foreign institutional investor to short sell and now SEBI will allow all categories of investors be it FII, Local Institutional Investors, Mutual Funds,Retail to short sell.
Short sell allows price discovery of a stock. Though this is a positive move and will add to the liquidity and depth of the market, it is yet to be seen whether it will tame the irrational rise/fall in the market.

Investors should be ready for this double edged sword, one the existing global and local scenarios and another the short selling which will unravel itself from 1st of February.