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Cheers melt into tears

Mumbai, Oct. 18: Foreign institutional investors (FIIs) are in no mood to forgive the Securities and Exchange Board of India (Sebi) for trying to regulate capital inflows by clamping down on participatory notes (P-notes).

In what seems to signal a wind-down of their exposures, FIIs today dumped stocks sparking a slide in the sensex which tumbled 717.43 points — 3.83 per cent — to 17998.39, its second biggest fall.

The crash came after the benchmark index had rallied to a new historic high after opening strong in the morning with smart gains in Reliance Industries and Tata Consultancy Services. Just when it seemed that the markets had ridden over the hump and came to terms with Sebi’s sudden decision to force a wind-down of P-notes over the next 18 months, foreign investors hit the sell button.

Brokers said FII sales began in the last two hours of trading and gathered momentum towards the close. The end result was huge volatility. After opening at 18827.46 and rising to an intra-day high of 19198.66, the sensex plummeted to a low of 17771.16, a 944-point fall. The difference between the peak and trough during the day was 1427 points.

Many foreign brokerages reckon stock markets will witness weakness in the short term. “Near-term incremental flow will slow once FIIs hit the limit of 40 per cent of assets under custody and cannot issue new P-notes, though the existing P-notes are not impacted,” a note released by Merrill Lynch said today.

Citigroup analyst Ratnesh Kumar said the proposed measures could have a negative impact on foreign inflows in the near term.

Rupee trend

The stock market slide impacted the rupee too, which closed at a near three-week low of 39.78 against the dollar, cheaper by about 23 paise from the previous close of 39.55.

In volatile trading at the interbank foreign exchange market, the local currency moved in a range of 39.39 and 39.80 after resuming firm at 39.48 a dollar.

The rupee had appreciated sharply against the dollar by more than 12 per cent so far this year on the back of a record capital inflows into the fast-growing economy.

On FM channel

Finance minister P. Chidambaram today attributed the second sharpest fall of over 700 points in the stock markets to “motivated rumours.”

“In the morning session the market gained 400 points, in afternoon, there were motivated rumours in the Mumbai brokers’ circle,” he said on the fall of the market for the second successive day today.

Chidambaram told global investors in New York that the Indian market was vibrant and regulations were in place — a comment possibly aimed at soothing foreign institutional investors.

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