Sensex swings 1,427.5 points on PN effect, closes 3.8% lower

Sensex swings 1,427.5 points on PN effect, closes 3.8% lower

Mumbai: Thursday ended up being the black day analysts and investors had predicted Wednesday would be, with the benchmark index of the Bombay Stock Exchange (BSE) swinging wildly by 1,427.5 points, touching a new high of 19,198.66 and a low of 17,771.16, before closing at 17,998.39, down 717 (or 3.75%) from the previous close, its second biggest loss ever.

The fall was prompted by stock market regulator Sebi’s announcement, late on Tuesday, of imminent curbs on participatory notes (or PNs)—an effort targeted at regulating and controlling huge and anonymous inflows of foreign money into the country’s stock markets.

On Wednesday, the Sensex fell more than 1,500 points in early trades, but recovered to close at 18,715.82 points, 1.8% down from its previous close.

Analysts, who did not wish to be identified, said while strong buying from domestic mutual funds and some foreign institutional investors (FIIs) kept the market up in the morning, huge sell-off by FIIs in the derivatives market later triggered a sharp plunge. Some of these analysts claimed that heavy selling by one of largest PN issuers, UBS Securities, accounted for a large part of the damage.

These analysts added UBS sold more than Rs4,000 crore worth of Indian equities and derivatives on Thursday. This claim could not independently be verified.

In response to a query, Joseph Cavatoni, a UBS executive based in Hong Kong who decides on the company’s India investments, wrote back in an email that he is out of office and will not be available to comment on this issue.

At the National Stock Exchange (NSE), the broader Nifty index also witnessed the same trend as it rushed to an all-time high of 5,736.8 in the morning and then lost more than 467 points to hit a low of 5,269.65 in the evening.

However, the index recovered 81 points and closed at 5,351. The Nifty October futures was trading at a discount of 32 at 5,318, at the day’s close, indicating selling pressure.

“The effect of Sebi’s new norms on investments through PNs will continue to affect markets for many trading sessions as the pressure on foreign investors, who have taken positions in Indian derivatives to unwind their positions, is high," said Jignesh Desai, head of institutional sales at SBI Capital Markets Ltd. “The derivative expiry day—25 October—is a key date. Many foreign investors who have taken derivative positions through PNs may chose to sell as against a roll-over," he added.

PNs essentially allow foreign investors not registered with Sebi to buy Indian equities. A registered FII buys the equities and gives a PN to the investor.

While BSE’s IT index remained flat, NSE’s was the sole gainer among the exchange’s sectoral indices.

In the currency market, heavy selling by FIIs pushed the rupee to 39.7850 a dollar, down 0.72% as from Wednesday’s level of 39.50. According to forex market experts, the fact that foreign investors have started unwinding or selling their PNs created downward pressure on the continuously surging rupee.

“I think the rupee will touch (the) 40 mark by Monday," said Amitabh Chakraborty, president for equity, Religare Securities Ltd.

“Actually it can hit that level by tomorrow (Friday) itself if today’s (Thursday’s) trend continues," he added.

Ashwin Ramarathinam contributed to this story.