Sensex doubled. So did 'hot money'.

It is not unnatural for investors to be ecstatic when they see their stocks doubling within a period of six months. Particularly, if this happens across a range of not only midcap and smallcap but also large bluechip stocks. The BSE Sensex had a dream run in the past six months when it doubled from near 8,000 levels in March 2009 to 16,000 levels in September 2009. And investors had enough reasons to smile. While the super-attractive valuations definitely attracted hoards of retail and long term investors, there was also another class of investors that is notorious for having caused havoc in the Indian stock markets. These are the unregistered FIIs who invest via Participatory Notes (P-Notes) only to artificially influence the stock prices in the short term.

As an Indian, if you want to buy shares, the government wants to know everything about you. As an Indian, if you wish to buy a mutual fund, the government wants to know everything about you.
If you are a US, European, Japanese pension fund; a university endowment; a charitable foundation; then the government wants to know a lot about you.

But if you are a P-Note holder, heck no one wants to know who you are!"

Contrary to popular perception, the SEBI's crackdown on P-Note holders has had little impact. While the assets under management of FIIs has doubled from Rs 3.9 trillion in January 2009 to Rs 6.3 trillion in June 2009, the total value of P-Notes has also doubled from Rs 655 bn to Rs 983 bn in the same period.

As P-Note holders get greedy, probably retail investors need to get fearful.

Source: SEBI