December 17, 2007 at 11:00 am by Tom Lydon
Ouch. Has India’s exchange traded note (ETN) become overvalued? Last week, the iPath MSCI India (INP) traded 22.3% above its net asset value (NAV), says Greg Newton at Naked Shorts. As he says, it’s great if you bought the ETN before late October, but not so good after that.
What’s going on here? The difference came about after India’s securities regulator put limits on the influx of overseas capital into its markets back in October. The board banned the issuance of "participatory notes" based on equity derivatives, and Barclays suspended the issuance, sale and lending of INP on October 26.
On November 5, INP was back, but in limited form. No new shares are being issued for the time being, and probably won’t be until either the Indian government completes its regulatory overhaul or the 18-month period to wind up existing participatory notes ends.
For a good explanation of what’s happening over in India and their markets, and their rationale behind some of the recent moves, peruse this informative Q&A.
The difference between the closing price and the NAV is just the law of supply and demand at work. Don’t we always want what we can’t have? India’s market had its biggest drop today in four months on fear of U.S. economic weakness spreading to emerging markets.
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