Sensex dips 118pts on PN ban fears

Stocks fell like ninepins, dragging the Bombay Stock Exchange (BSE) Sensex below 6,000 in an extended trading session. The Sensex ended 117.72 points (1.94 per cent) lower, at 5,946.19. With yesterday's loss, the Sensex has lost 302.62 points from a high of 6,248.80.

Selling by select index-based hedge funds triggered today's fall on concerns over a possible ban on investments through participatory notes. Further pressure was exerted by banks, which started dumping stocks pledged as collateral after their market value fell below a point.

Seeing the panic, several foreign brokerage houses have asked the finance ministry for clarifications on the status of participatory notes.

Participatory notes are offshore derivative instruments issued by foreign institutional investors and their sub-account holders against underlying Indian securities.

The Securities and Exchange Board of India (Sebi) has merely recommended to the ministry that the notes should be issued only to overseas entities regulated in their home countries, but the market was hit by speculation that the route might be closed for all. Sebi sources said a notification on participatory notes would be issued soon.

According to Sebi data, participatory notes issued have declined in actual value by a few thousand crore rupees between October and December.

But the confusion sent the market reeling: selling pressure was seen across the board with 1,411 scrips posting losses and 416 advancing on the BSE. The State Bank of India scrip eased 3.76 per cent to Rs 635.45. Consumer goods giant Hindustan Lever shed 1.49 per cent to Rs 205.10. However, Reliance Industries traded firm as the stock settled at Rs 580.75, up 0.67 per cent on fresh buying interest.

Vikas Khemani, assistant vice-president, Edelweiss Capital, said: "There was selling pressure across the board with foreign institutional investors selling in select heavyweights."

On the National Stock Exchange (NSE), the S&P CNX Nifty Index shed 43.80 points to end at 1,900.65. Market trading hours were extended today to compensate for time lost as a result of a technical snag in the NSE's futures and options trading system.

The turnover on the BSE rose to Rs 3,672.62 crore from Rs 3,294.60 crore on Thursday. But the traded volume was lower: 214.7 million shares were traded today against 218.6 million yesterday.

 On the NSE, 3.31 million (3.66 million) shares worth Rs 6,567.76 crore (Rs 6,849.73 crore) were traded today. In the derivatives segment, 314,630 (263,147) contracts worth Rs 15,440 crore (Rs 13,225 crore) were traded on the NSE.

Below 6,000

• With Friday's loss, the Sensex has lost 302.62 points from Thursday's high of 6,248.80
• The fall was triggered by hedge funds on concerns over a possible ban on investments through participatory notes