The Hindu : Front Page : Sensex tumbles, recovers

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Thursday, Oct 18, 2007
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Sensex tumbles, recovers

Ashok Dasgupta

No ban on Participatory Notes: Chidambaram

NEW DELHI: In a day of high-voltage punting drama, the Bombay Stock Exchange’s Sensex on Wednesday tanked by an unprecedented 1,744 points within minutes of opening trade only to recover just as fast after an hour-long suspension. Both the government and market regulator Securities and Exchange Board of India promptly swung into an effective damage-control mode.

Triggering the record slump were certain measures proposed by the SEBI to moderate capital inflows in the overall interest of the economy, the stock market and investors.

The proposals, posted on the SEBI’s website on Tuesday for public comments, included restrictions on issue of offshore derivative instruments (ODIs) by foreign institutional investors (FIIs) and their sub-accounts — better known as ‘Participatory Notes’ — in relation to their exposure in the market.

Finance Minister P. Chidambaram in the capital and SEBI Chairman M. Damodaran in Mumbai, in impromptu briefings, sought to assure investors that there was no ban on PNs and that the proposals related to ODIs were well calibrated to check the flow of anonymous funds into the stock market.

“Let me assure all investors what has been done is to moderate capital flows, which have become very copious. It is a culmination of long discussions between the SEBI, the RBI and the government,” Mr. Chidambaram said. SEBI’s proposals, he said, were just a consultation paper, but would become regulations with or without some modifications.

However, what succeeded in bringing about a semblance of normality was the Minister’s reassuring comments: “We are not in favour of banning PNs. We have not banned PNs. We have simply placed some cap on proportion of money coming through PNs.”

Mr. Damodaran also pointed out that the proposals on ODIs were a “well-designed package” and urged investors not to be carried away by rumours. In a clarification, the SEBI said: “There is no proposal to bar ODI contract, expiring this month or in the following months, being renewed, provided the renewals do not go beyond 18 months.”

Political parties also, it may be recalled, had questioned the merits of the free flow of funds through the PN route as the origin of such anonymous funds could well be terrorist outfits. Sanguine about the market’s partial recovery, Mr. Chidambaram had earlier said: “Even when we are speaking, a large number of FIIs are buying in the markets, therefore there is no reason for any panic or any sense of alarm ... Before the day is over, everybody will think coolly and things will quieten down.”

Mr. Damodaran, on his part, assured investors that the SEBI would expedite registration of new FIIs by simplifying the procedures.

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