| FM, Sebi, domestic institutions shore up battered markets. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In a day of twists and turns, the benchmark Sensex plunged 10 per cent within minutes of opening yesterday, forcing a one-hour trading halt for the third time in the history of the markets, but recovered dramatically following clarifications from the finance minister and market regulator and buying interest from domestic institutions. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
 The markets were reacting to the Securities and Exchange Board of India's (Sebi's) late October 16 announcement on restricting participatory notes (PNs), an offshore derivative instrument used by overseas investors who buy shares anonymously.PNs, which are used by foreign institutional investors (FIIs), have been considered instrumental in a 5,000-point surge in the Sensex this year. Sebi has estimated that they now account for a little over half of FII inflows from about a fifth in 2004. Both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) had been open for three minutes before circuit triggers were breached, forcing trading to be suspended. Also read:- Govt not in favour of banning P-notes: FM F&O exposure of PNs to be squared off in 18 mths BJP demands probe into market crash The 30-share Sensex nosedived 1,743.96 points, or 9.15 per cent, to 17,307.90 points, while the 50-share Nifty index fell 524.15 points, or 9.25 per cent, to 5,143.90 points on opening, triggering the trading halt. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
 At 10.40 am, Finance Minister P Chidambaram briefly emerged from his North Block office to tell reporters that the proposals were aimed at moderating capital inflows into the country."Sebi's step was good for the capital markets and investors," he said , adding that investments through PNs were welcome if registered as by FIIs. Later in the afternoon, Sebi also clarified that FIIs can roll over derivative exposures through PNs up to 18 months. The clarification was important as a section of the market thought the regulator's move would force them to unwind their positions before the stipulated expiry of the derivatives contracts. These statements calmed the markets and within minutes of trading being resumed, the markets began to trim their losses. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
By afternoon, the Sensex had gained over 1,000 points in a single day's session. It finally closed down just 1.76 per cent at 18,715.82 and the Nifty was down 1.92 per cent to 5,559.30.
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| Trading volumes were extremely low (Rs 122.02 crore on the BSE and Rs 48 crore on the NSE) when trading was halted. The combined average daily trading volume on the BSE and the NSE is Rs 15,000 crore. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FIIs were net sellers to the tune of Rs 6,325 crore (Rs 2,102 crore in the cash market and Rs 4,223 crore in derivatives), but domestic institutions were net buyers at Rs 285 crore.
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| PN investments have gone up 51 per cent to Rs 3,53,484 crore in the last three years. PNs' exposure in the derivatives segment is pegged at Rs 1,17,071 crore. Also read:- P-notes highest in HDFC, ICICI Bank Turnover on bourses soars The jury is out on Sebi move Panic Notes in markets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Analysts at CLSA said Sebi's proposals could, thus, have a significant adverse impact on fund flows. CLSA is one of the top five issuers of PNs in the country. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Others, however, believe that the long-term India story remains intact. Sonal Varma, analyst with Lehman Brothers, said regulators had been uncomfortable with the opaque nature of investments through the PN route. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| "We judge that the measures are unlikely to have a large impact in the medium term and that the trend over the medium term will continue in the direction of capital account liberalisation," she said. Also read:- Simplify norms, FIIs urge Sebi Investors should be prepared to invest long term: Mark Mobius Hedge funds can't reveal secrets & do business Sebi Paper for discussion on Participatory Notes Sebi clarification on PNs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IT counters also saw renewed buying interest as the rupee, which has strengthened more than 10 per cent in the last six months, weakened a little. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TCS (up 2.53 per cent to Rs 1,095.10 a share), Satyam Computers (up 1.63 per cent) and Infosys Technologies (up 1.16 per cent) were key gainers. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Asian markets also ended down, though on concerns over the housing bubble in the US. The Morgan Stanley Capital International Asia-Pacific Index lost 0.9 per cent to 165.20 at 7.44 pm in Tokyo. Also read:- Much ado about little? Surjit S Bhalla: Responsible policies for FIIs, P-notes Ajay Shah: Making sense of P-notes Akash Prakash: Liquidity will be badly hit Pratip Kar: The (mis)behaviour of the Indian stock market It's a pragmatic move, says Shankar Sharma | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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BSE, NSE had a great fall
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First Published: Oct 18 2007 | 12:00 AM IST
