Indian share market sees 9% slump
Trading on India's main stock index, the Sensex, was suspended briefly
on Wednesday, after the market slumped 9%.
The fall came after the stock market regulator proposed urgent curbs
on the flow of foreign funds into shares, in order to stop the market
overheating.
The Sensex sank to 17,544.15, after Tuesday's record high of
19,174.45, while the rupee also lost value. Trading resumed after an
hour.
India's finance minister said that there was no need for alarm.
Some of the early losses were clawed back when trading resumed, with
the Sensex down 6.1% at 17,799.69.
'Abundant investment'
The regulator's recommendation relates to participatory notes - a form
of investment used by hedge funds and other foreign investors who are
not registered in India.
Investor sentiment is likely to weaken considerably as an important
source of potential inflows has likely been plugged
Rajeev Malik, JP Morgan
Analysts say the proposal may be aimed at countering a surge in
foreign money that has caused Indian share prices to rise sharply -
worrying some policy makers about its potential impact on the broader
economy.
Finance minister P Chidambaram said that foreign investment was still
welcome and that a ban on the notes was not intended.
"But presently it is important to moderate capital flows, which are
getting very copious and abundant," he said.
Analysts at JP Morgan suggested that of the $17bn of foreign funds
invested in India so far this year, about $10bn has been in
participatory notes.
"Investor sentiment is likely to weaken considerably as an important
source of potential inflows has likely been plugged," said Rajeev
Malik, an economist at the firm.
And Shitin Desai of DSP Merrill Lynch said that the market was
reacting nervously to a proposed regulatory move.
"This is the first step towards tighter norms for overseas funds,
which is healthy."
India is seen by many investors as one of the safest havens among the
emerging markets as investors try to tap into one of the world's
best-performing economies.
The rupee has risen more than 11% against the US dollar since the
start of the year. It stood at 39.31 to the dollar at Tuesday's close,
but had weakened to 39.90 early on Wednesday.
Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/7048271.stm
Published: 2007/10/17 07:41:30 GMT
(c) BBC MMVII
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DEV BOREM KORUM.
Gabe Menezes.
London, England
