Not all of the FII money flowing into Indian stockmarkets is chasing the India story. Or so thinks the Securities and Exchange Bureau of India (SEBI), which has asked Goldman Sachs and Citigroup Global Markets to disclose the source of money flowing through participatory notes, or P-notes. But what are these P-notes? These are derivative instruments issued to foreign investors against underlying Indian securities. It is usually issued to those foreign investors who want to trade in Indian stockmarkets, but are not registered as a foreign institutional investor (FII). P-notes are different from FII investments in that the latter usually act like a mutual fund, collecting money from retail investors in various countries and investing in stocks in India. But in the case of P-notes, the choice of stocks, timing of sale and purchase, etc., are decided by the P-notes holder, and the FII only acts as a middleman. Therefore, it works more like a portfolio management scheme, where the investor gets to keep his discretionary powers. Why is the regulator worried? "That's because there are chances that entities banned from directly investing in Indian stockmarkets get to do so through P-notes," says Somasekhar Sundaresan Securities Law Specialist at J. Sagar Associates. For instance, there are reports that several FIIs (like Citigroup and Goldman Sachs) have issued P-notes to banned entities such as CSFB and overseas corporate bodies. From that stems another of SEBI's worries that some Indian promoters may be using this route to rig prices of their own stocks. This is what happened during the famous Ketan Parekh rally of 2000.

Should you panic? Not immediately. P-notes account for a fifth of all inflows through FIIs and the holdings are well diversified across 200 stocks. Besides, with SEBI granting itself more powers to probe FII investments in August, a P-notes scam may be harder to pull off.

-Narendra Nathan

ADO
The Show Came To Town Again

Never mind that a bunch of NGO activists turned up at the inauguration to boo Gujarat Chief Minister Narendra Modi, the nineteenth India Economic Summit was in keeping with industry's dominant mood, which is upbeat. Everybody seemed willing to concede that the Indian economy would grow 7 per cent this fiscal. In fact, Sunil Kant Munjal, Vice President of the Confederation of Indian Industry (CII), which co-organised the summit with the vastly successful World Economic Forum, called it the "best so far" at his wrap-up press conference.So just what happened? Did the 500-odd delegates, half from abroad, return home with new deals, or did the government announce a new initiative based on their feedback? Actually, nothing of that sort happened. Still nobody is complaining. Says Anand Mahindra, President, CII: "It's an excellent networking opportunity. Besides, the various sessions give superior intellectual inputs and peek at the emerging economic trends." Indeed, some of the CEOs that BT spoke to were under no illusion what to expect of the two-and-a-half-day jamboree. "It's wrong to have such expectations (that is, for deals to be struck) from summits. It's more of a meeting point, like the village well people gather around to chat," said Vinayak Chatterjee, Chairman, Feedback Ventures. Anyway, when the economy is on a roll, who needs a hard-working CEO?

-Sahad P.V.

The Day of Safed Musli
The herbal aphrodisiac is one of the many medicinal plants being snapped up by global buyers.

Safed Musli: Growing demand

Guess how many turned up for an exhibition-cum-seminar on medicinal plants and herbs held in Mumbai on November 13-16 this year? Two lakh. Reason: Last year, India exported Rs 1,000-crore worth of medicinal plants, mostly whole, but some in extract form, to a Rs 5,000-crore global market that is growing at 15-20 per cent a year.

The major medicinal plants exported from India include psyllium husk, saps and extracts of opium, cambodge extract, henna powder, (of late) safed musli, a herbal aphrodisiac, and a popular cosmetic ingredient aloe vera. But here again, China seems to have an edge (give us a break, guys), exporting double the quantity India does. Part of the problem is that while India boasts some 8,000 species of medicinal plants, only 880 are traded domestically and a mere 48 exported. Besides, India is missing the segment where there's big action: the $46.7-billion nutraceuticals market. Says S. Prahalathan, Deputy General Manager, Export-Import Bank of India, who prepared a report on the export potential of Indian medicinal plants and products: "India now has to look at adding value and not just export of crude and extracts." Some cultivators seem to agree. For instance, the Hyderabad-based Nanda Agro Farms, which has been producing safed musli for the last eight years, plans to manufacture value-added products. "We don't want to remain mere cultivators to the world," says its Director B. Jayakumar.

You'd never guess the kind of entrepreneurs the market is now attracting. The latest, we are told, is the Archaeological Survey of India, which wants to grow medicinal plants at some 20 archaeological sites. Either it's the market or those folks have a thing for the weed.

-Sahad P.V.

Q&A
"India Has An Image Problem"

When Harris N. Miller talks, people in India listen. As the President of the Information Technology Association of America (read America's Nasscom), Miller wields a lot of clout in the IT industry. BT's Venkatesha Babu caught up with the portly Miller at a Nasscom do in Bangalore. Excerpts:

Just how bad is the offshoring backlash?

It is a major problem, but I also think the media has blown it out of proportion (smiles). You have to understand that this is an election year, and there are various compulsions on politicians in the US, just like in India. There is a lot of pain in the American it sector; for the first time there is 6 per cent unemployment in the industry. You cannot explain to the average Joe that buying Indian software services is a win-win situation.

Manufacturing jobs went easier to China...

India has an image problem. While everybody knows that China is taking away manufacturing jobs, they also see it as presenting a market of 1.3 billion people. We keep pointing to India's 1.1 billion people as a potential market, but somehow our people don't agree. Even at the Cancun talks, many in the US saw India as being obstructionist, and acting against US interests.

What can Indian companies do?

They need to involve themselves in the communities where they have major operations. They cannot sit back and say we'll just serve our customers and do nothing else. Nasscom is doing a fine job, but it requires more political support to act on issues like fair trade and protection of intellectual property rights.