In March, 2001, the Securities and Exchange Board of India (SEBI) banned short selling in the Indian stock market. The ban was instituted partly because of a crash in stock prices and allegations that Anand Rathi, the then-president of the Bombay Stock Exchange (BSE) used confidential information acquired by BSE's surveillance department to make gains and contribute to volatility (Rathi was later absolved of any wrongdoing by the Securities and Exchange Board of India).

Shortly after the ban, only retail investors were allowed to short sell in the marketplace. In 2005, the Securities and Exchange Board of India (SEBI) recommended that institutional investors such as mutual funds be allowed to short-sell shares in the market, as well. In July, 2007, SEBI issued short selling guidelines for institutional investors and in early 2008, institutional investors were allowed to start short selling shares again. (For more on short selling, read our in-depth tutorial on Short Selling.)

This question was answered by Chizoba Morah.

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