Chidambaram’s remarks help Indian shares recover a little


Mumbai : After crashing by over 1,700 points in the early hours of trading Wednesday and an hour-long suspension of business by the authorities, a key Indian index corrected itself by 940 points on assurances from Finance Minister P. Chidambaram.

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The 30-share sensitive index (Sensex) of the Bombay Stock Exchange was ruling at 17,948.74 points soon after trading resumed at 10:55 a.m. following an hour-long suspension because of a 9.15 percent crash.

At this level, the key index had staged a major recovery, but was still down 1,103.12 points, or 5.79 percent over the pervious day’s close at 19,051.86 points. All but three stocks that go into the Sensex were trading in the red.

Earlier, the index had crashed to 17,307.90 points, down 1,743.96 points or 9.15 percent due to panic among investors after the markets watchdog decided to clamp down on participatory notes of foreign funds to curb excessive speculation.

This was the steepest ever fall of the index.

Chidambaram’s statement soon after the crash that participatory notes were still welcome, even as the country needed to moderate excessive inflows of speculative portfolio investment, soothed sentiments, analysts said.

“We are not in favour of banning participatory notes. We have not banned them. We have simply placed a cap on the proportion of money coming through participatory notes vis-à-vis overall assets,” he said.

The finance minister also told a hurriedly convened news conference that the system put in place by the markets watchdog was good for the Indian stock markets in the long run and added there was no cause for any alarm.

“The fundamentals of Indian economy have not changed from yesterday to this morning. Corporates are announcing their results for the second quarter and profits are still very handsome,” he added.

Markets regulator Securities and Exchange Board of India (SEBI) said late Tuesday it will ask foreign funds to immediately cease issuing or renewing participatory notes to their clients for investing in stocks or derivatives.

“They are required to wind up their current positions (in participatory notes) over 18 months during which period the regulator will review the position from time to time,” a SEBI note said.

It found that the notional value of participatory notes issued by the 34 foreign funds constituted 51.6 percent of all the assets under the custody of foreign institutional investors.

Wednesday’s losers among the Sensex stocks were led by Reliance Energy, followed by Reliance Communications, ICICI Bank, National Thermal Power Corp, Bharat Heavy Electricals, Reliance Industries and Associated Cement.