Euphoria is back on Dalal Street, at least for the time being. Shrugging off the shock created by the Sebi proposal to curb the use of participatory notes, the market staged a strong rally today, with the Sensex posting its biggest ever single-day point gain of 879 points (4.99 per cent) to close at 18,492.84. The market sentiment got a shot in the arm after Sebi provided a partial breather to FIIs on use of PNs and said it would speed up regulatory clearance for foreigners keen to invest transparently.

The previous biggest single-day gain of the Sensex was on October 9, 2007, when it had risen 789 points (4.51 per cent) to 18,280.24. With today’s rally, the Sensex has gained more than half of what it lost last week. The Sensex was battered last week, falling by 1,600 points (8.39 per cent) in four days after the regulator proposed restrictions on PNs on October 16.

Marketmen were enthused by the Sebi move to allow proprietary sub-accounts (through which FIIs handle participatory notes) to get the FII. Though the application must be submitted in a week, market sources said many FII sub-accounts are likely to convert to FIIs in this period. Sebi will go ahead with its proposed restrictions on FII investments through PNs but the instrument is here to stay, provided the anonymity behind it is lifted.

Speculation that Sebi has cleared a proposal allowing foreign individual investors to invest on Indian bourses aided the surge in the second half of the trading session. The minimum net worth criteria for a foreign individual investor, who intends to invest directly is set at $50 million, the reports suggest. “Besides, there was massive short-covering by bear operators who sold shares heavily after the PN move by Sebi. Bears are covering their positions ahead of the derivative expiry on Thursday,” said BSE dealer R A Poddar.

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