Govt seeks to calm markets

50 penny stocks under scanner, Sebi may probe panic reports; Investors advised caution.

In an attempt to calm frayed nerves in the stock markets, the government today said it had not detected any irregular bourse activity so far.

But it may ask the Securities and Exchange Board of India to probe reports of a crackdown by the Prime Minister's Office causing the market to fall over the last two trading sessions. Officials said the market regulator was watching the movement of around 50 penny stocks.

"So far we have not discovered any irregularity and the government is in no way involved with the investigations. It is the job of the regulators and they are doing their job," a finance ministry official said.

He said Sebi had already initiated measures like introducing a 5 per cent circuit breaker for the shares of small companies and increasing the margin.

"It is not an alarmist situation. The rise in the Sensex and Nifty scrips was based on fundamentals," the official added.

In a statement, the finance ministry also said the Central Board of Direct Taxes was not planning nation-wide search and seizure operations against five stock brokers. "The searches conducted at a few places in Gujarat were a part of normal investigations carried out by the income tax department," the ministry said.

Ministry officials said the searches were based on specific intelligence reports, which were developed over a period of time and planned in advance. They also said the searches conducted on the premises of real estate developer Omaxe in and around Delhi were also routine in nature.

The officials said they expected a 1-2 per cent correction after the Sensex crossed 8,500. "But there was an additional 1-2 per cent drop following media reports of raids on brokerages. The raids were isolated," an official said.

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Asked if the government, Sebi or the Reserve Bank of India were monitoring participatory notes, officials said everything was being watched, but nothing irregular had been found. "We only come into the picture once action is been taken," an official said.

In a statement, the company affairs ministry today advised small investors to invest in companies with strong fundamentals. It also said Sebi was watching the situation and taking necessary steps, and that other government agencies were on a high alert as well.

Sanjaya Baru, media adviser to the Prime Minister, said the PMO had not held any meetings on the stock market developments. "The PMO is confident that the finance ministry and Sebi are competent authorities. There was no meeting in the PMO as reported in newspapers," he said.

UK Sinha, joint secretary in charge of the finance ministry's capital markets division, said he was in Mumbai yesterday to attend the board meetings of UTI Asset Management Company and Central Bank of India. He added that the PMO had not instructed him to rush to Mumbai along with Intelligence Bureau officials.

Finance ministry officials said Economic Affairs Secretary Ashok Jha's meetings with the Directorate of Revenue Intelligence, the Intelligence Bureau, the Central Bureau of Investigation and Sebi were on the action taken against entities identified by a joint parliamentary committee which probed the last stock market scam.

"Sebi wanted greater co-ordination with the agencies on information-sharing and we just discussed the matter," the officials said.