Stock market restricts losses to 336 pts

Stock market restricts losses to 336 pts

Mumbai: The Bombay Stock Exchange benchmark Sensex today closed 336.04 points down, after recovering over 1,400 points from the day’s low, as reassuring comments from the government and the market regulator lifted investors’ sentiments.

The 30-share Sensex settled at 18,715.82 points, down 1.76 per cent from the previous close. It had dropped by 1,744 points in intra-day trade. PTI

Afternoon Trade

New Delhi: Indian stocks mostly bounced back from a steep morning plunge today after Finance Minister sought to reassure investors that authorities were seeking to limit, not ban, a financial instrument used by many foreign funds to invest here.

Sensex was down 1.2% at 18,816 points in afternoon trading after earlier tumbling 1,508 points, or 7.9%. The plunge triggered an automatic one-hour suspension of trading.

The morning drop came as investors reacted to a proposal by the Securities and Exchange Board of India late Tuesday to limit the issue of participatory notes -- instruments that allow foreign funds not registered with the market regulator to invest in Indian shares.

Many investors initially interpreted the proposal as a move to ban participatory notes, which lately have become a major route for foreign money flowing into the stock market.

The market recovered much of its lost ground after Finance Minister P. Chidambaram clarified that both his ministry and the market regulator want not to ban, but limit the use of participatory notes.

Sebi’s proposal follows a record rally in the stock market that saw the Sensex rise 23% in the past month, the fastest ascent in Asia, driven largely by a surge in foreign money.

Policymakers, however, are worried that the jump in capital flows could harm the broader economy by fueling inflation and bring more volatility to the financial system.

The Sebi statement said it was concerned over the sharp rise in investment through participatory notes as the identity of such investors remains anonymous. Investment through this route were valued at 3,534 billion rupees (US$88.3 billion) as of 31 August, up more than 10 times from 319 billion in March 2004, the statement said.

The proposal did not specify how much authorities want to reduce the use of the participatory notes, but it contained measures that would make it difficult for unlisted foreign funds to invest in Indian shares.

Chidambaram said the measures are “in the long-term interest of the investors" and would help “moderate capital inflows which had become very copious and abundant."

He also said it was not the government’s intention to keep foreign investors out of the stock market.

“We welcome foreign investment. They (investors) should come and register with the Sebi," he said.

Analysts said the market could go down further as the Sebi’s move would likely leave less money chasing stocks in the market.

“The liquidity tap has been shut off, the very source of money has been shut," said Jayant Pai, assistant vice president for institutional equity sales at investment company IL&FS Ltd.

“It’s a knee jerk reaction, people have panicked. It could go down further because people are still sitting on good profit and the tendency will be to take profits and move out," said Pai. AP


Mumbai: Sensex opened 5.3% down on 17 October and extended its fall to nearly 8% after the stock market regulator proposed urgent curbs on the flow of foreign funds into shares.

The falls triggered circuit breakers and the share markets are shut for 1 hour, a National Stock Exchange official said.

At 9:57 am, the 30-share benchmark BSE index was down 7.91%, or 1,507.71 points, at 17,544.15.

The broader NSE index was down 9.25% at 5,143.90.

The index had hit its 18th record high in 19 sessions on 16 October, and at the close was up 21.6% since the US Federal Reserve cut interest rates on 18 September, driven by large foreign fund flows.

The Securities and Exchange Board of India (Sebi) said on its website on 16 October that after consulting the government it was recommending changes in policy on participatory notes (PN) and set a deadline of 20 October for comments on the proposals.

It recommended foreign institutional investors (FIIs) immediately cease issuing or renewing PNs on underlying derivatives. FIIs could issue other PNs, but this would be limited by the value of notes outstanding relative to their assets under custody in the country. Reuters