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Posted on 10/17/2007 2:08:19 AM PDT by bruinbirdman
MUMBAI - Indian stocks nose-dived Wednesday morning after India’s securities regulator proposed closing off an avenue through which overseas investors have been buying Indian shares and bonds.
The Bombay Stock Exchange’s benchmark Sensex index plunged 9.2% to 17,307.90 and the National Stock Exchange’s Nifty index fell 9.3% to 5143.90, triggering a market circuit breaker requiring an hour’s halt to trading.
In a release posted on its Web site after the market closed Tuesday, the Securities and Exchange Board of India (SEBI) said it and the Reserve Bank of India were concerned by the year-on-year rise in issuance of so-called offshore derivative instruments.
Offshore derivative instruments are financial vehicles used by foreign entities not registered with SEBI to invest in domestic securities. Foreign institutional investors that are authorized to invest in the country will buy securities and issue participatory notes to other foreign investors, who profit from dividends or capital gains. Regulators have in the past expressed fears such investments could lead to market volatility.
SEBI said it was proposing that foreign institutional investors and their sub-accounts not be allowed to issue or renew offshore derivative instruments.
It also wants them to wind up their current positions over the next 18 months. SEBI estimates about 34 foreign institutional investors issue ODIs, up from 14 in March 2004.
Indian Finance Minister P. Chidambaram sought to calm the markets Wednesday, saying foreign investors were “welcome to invest in India, but for the present it is important to moderate these capital flows.”
The government is not in favor of banning participatory notes, but it wants to cap them, he said. Registered foreign institutional investors can still invest in the market, the finance minister said. His comments are an affirmation that SEBI’s recommendations will likely be implemented this month.
The regulator has asked the government to respond to its proposals by Oct. 20. It said the notional value of participatory notes outstanding rose 11 times to 3.53 trillion rupees ($89.8 billion) in August this year, up from 318.75 billion rupees ($8.12 billion) in March 2004.
Following the resumption of trading, the markets recovered some of their losses, with the Sensex off 6% at 17,928.44 and the Nifty down 5.8% at 5,339.60 at noon in Mumbai. The rupee was trading weaker against the dollar at 39.59, off 0.2362.
Stocks that had powered the rally in recent days took a beating in the morning session.
After opening down 11.3%, Reliance Industries was off 3.23% at 2,566 rupees ($64.82) on the National Stock Exchange; real estate giant DLF was down 5.23% on the Bombay Stock Exchange, at 870.50 rupees ($21.99); and Hindustan Lever dropped 1.85% to 209 rupees ($5.28) on the Bombay exchange.
Valuations of Indian equities have been soaring, with the benchmark Sensex index of the Bombay Stock Exchange rising 38% this year, partly due to an influx of foreign money that has led to inflationary pressure and made the rupee dearer against currencies like the dollar.
The Sensex on Monday crossed the 19,000 mark only four trading sessions after it touched 18,000. The rapid rise in recent weeks has sparked analyst concerns that a small trigger could set off a correction.
“This was a problem waiting to happen. The economy was hurting because excess liquidity caused by foreign inflows had led to inflationary pressures and caused the rupee to appreciate,” said technical analyst Ashwini Gujral. After the initial knee-jerk reaction is over, foreign investors will continue to pump money into India because the fundamental growth story remains strong, he said.
American depositary shares of Indian companies had previously fallen sharply Tuesday. HDFC Bank (nyse: HDB - news - people ) plunged 10.23% to $106.64; ICICI Bank (nyse: IBN - news - people ) lost 6.5% to $52.43; Satyam Computers (nyse: SAY - news - people ) was down 4.04% at $25.60; and Dr. Reddy’s (nyse: RDY - news - people ) fell 3.06% to $15.49. The India Fund (nyse: IFN - news - people ) dropped 8.45% to $54.20, while the Morgan Stanley India Investment Fund (nyse: IIF - news - people ) was 6.50% lower at $53.20.
So what do you think?
yitbos
...another example of behavioral conditioning by international free markets? India has a growing pain from time to time, but it’s starting to grow enough to become much more independent soon (consumer activity growing there).
I have a question, though. Can we in the USA adjust technologically and socially, gracefully enough again to producing much more here? Or have we become too impulsive and limped-wristed in our “service economy” ways?
Market recovers after FM’s statement
http://timesofindia.indiatimes.com/Market_recovers_after_FMs_statement/articleshow/2466011.cms
MUMBAI: The stock market crashed recording the sharpest ever fall of about 1,800 points within minutes of opening on fears of market regulator SEBI’s move to curb overseas derivative (participatory notes), but cut the losses by nearly half on assurances from Finance Minister P Chidambaram.
The stock market benchmark index, Sensex, recovered about 900 points to 18,160 points after trading resumed following an hour long suspension.
The National Stock Exchange’s wide-based Nifty also recovered but was down 4.70 per cent at 5,401.45 points in the reopened session.
While the fall was induced by SEBI’s discussion paper last night proposing to curb PNs and other offshore derivative instruments, the recovery was on assurance from Chidambaram that the government was not against the PNs.
There is no need for alarm, says Chidambaram
17 Oct 2007, 1102 hrs IST
http://timesofindia.indiatimes.com/Mid-week_crash_FM_says_no_need_for_alarm/articleshow/2465764.cms
NEW DELHI: Finance Minister P Chidambaram tried to cool down the situation after the stock market benchmark Sensex on Wednesday crashed by 1,743 points within minutes of opening, prompting suspension of trading for an hour.
Chidambaram said, “Fundamentals of the economy are still strong and there is no need for alarmist statements.”
Elaborating further, the Finance Minister said, “ Systems put in place by SEBI have worked and it has been necessary, good and in investors interest.”
The Finance Minister welcomed foreign investors through PNs. The markets immediately bounced back after re-opening after the Finance Minister’s comments.
Earlier, the stock market benchmark Sensex crashed by 1,743 points within minutes of opening, prompting suspension of trade for an hour as a result of the fallout of regulator SEBI’s move to curb Foreign Institutional Investors.
The 30-share index, Sensex, tumbled to 17,307.90, a fall never seen before. The fall forced the trading to be suspended for one hour on BSE.
From CIA FactBook:
Industries:
leading industrial power in the world, highly diversified
and technologically advanced; petroleum, steel,
motor vehicles, aerospace, telecommunications,
chemicals, electronics, food processing,
consumer goods, lumber, mining
Remember we have more unused land and untapped resources than almost any country.
yitbos
I noticed the India Fund ETF (IFN) tanked 7.5% yesterday.
Restricting foreign capital is a great way to ensure you never get big enough for anything.
I keep desperately hoping I can get a job in a factory making T-shirts and leave my "service" job as a naval analyst.
Yup, Indian regulators are always moving the goalposts.
Yet the rule they're proposing is to restrict derivatives, which may be a good idea.
Derivatives are leveraged investment instruments, such as investments in which direction the stock market will go, bonds backed by mortgages and so on. They can become very complex, so much so that the buyer does not perceive how risky they are.
A classic example is Enron, who puffed up their assets using derivatives based upon the perceived value of their company. Once the perception started falling, their value collapsed and the company collapsed.
I believe they should be permitted, but with full disclosure on the possible risk of loss.
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Ah, so Rush Limbaugh's a homosexual? Blackwater Security workers are a bunch of pansies? OK, maybe the services where you work it's like that but you're not speaking for the rest of us.
The NSE-50 closed down just 1.92%. Should be an interesting day tomorrow.
So it's increasing the value of the currency and devaluing it at the same time. No wonder they are concerned.
IFN was down 8.45% yesterday. Sounds like the market in India did better than most expected “overnight” and that the 8.45% drop was an over-reaction. We’ll see today.
This is insanity. Capital flows to where it’s welcome. India put up a big sign at the border, wealth not allowed.
For more than 60 years, India’s economy was held back by stupid, inward thinking like this. One stutter step into the transparent world of commerce; two steps back.
FYI, the regulator is most competent, very honest and a reformer. Which is why he was given the hot seat at SEBI ( the Indian version of the SEC). Indian markets have become far more transparent under him. Earlier they were prone to all kinds of manipulation, rigging and insider trading. Now its much more difficult.
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