The Hindu : Business : Sensex crashes by 1744 points before gaining some ground

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Thursday, Oct 18, 2007
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Sensex crashes by 1744 points before gaining some ground

Special Correspondent

IT, power, capital goods stocks lead recovery

— PHOTO: PAUL NORONHA

A WORRIED LOT: Harried stock brokers in Mumbai listening to the Finance Minister’s speech as trading on the Bombay and National stock exchanges was halted after share prices crashed in early trade on Wednesday.

MUMBAI: In a knee-jerk reaction to the cap proposed by the market regulator for the Participatory Notes, an overseas derivative instrument (ODI), used by foreign institutional investors (FIIs), the stock market crashed on Wednesday by 1744 points in intra-day, but recovered substantially later to close with a loss of 336.04 points or 1.76 per cent at 18715.82.

The BSE 30-share sensitive index (Sensex) opened with a negative gap of 1014 points at 18038 while the NSE 50-share Nifty opened marginally 10 points down and dipped to 524 points. Later the Nifty closed down by 108.75 points or 1.92 per cent at 5559.30. Last Monday, the Sensex crossed the 19000-mark with a gain of 639.63 points.

From the 18000 level the Sensex took only four days to close above the 19000-mark, which surprised the market participants as well as the regulators. Markets were scaling up newer highs and crossing every psychological level quite easily.

The Securities and Exchange Board of India (SEBI) found that the value of outstanding ODIs with underlying as derivatives now stands at Rs. 1,17,071 crore, which is 30 per cent of total PNs outstanding.

The notional value of outstanding PNs, excluding derivatives as underlying as a percentage of Assets Under Custody (AUC) is 34.5 per cent at the end of August 2007. SEBI on Tuesday evening proposed that FII sub-accounts should stop issuing PNs and should wind up their positions over 18 months. However, the regulator, clarified on Wednesday that “there is no proposed bar on ODI contracts, expiring this month or in the following months, being renewed, provided the renewal does not go beyond 18 months. It is further made clear that this proposal does not in any manner seek to restrict renewal or rollover of Indian Exchange Traded Derivative Contracts by the FIIs.”

After SEBI’s clarification, the markets recovered led by the IT stocks followed by power and capital goods.

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