New Delhi, Jan. 21: The economic fundamentals of the country are strong and today’s gut-wrenching fall in stock markets is because of international uncertainties.

This was the message of the Union government to investors after the sensex tumbled 1408.35 points to close at 17605.35.

“Considering that fundamentals of our economy are elementarily strong, I am confident the market will grow in an orderly manner,” Prime Minister Manmohan Singh assured investors.

The finance ministry echoed Singh’s view and said, “The fundamentals of the domestic economy are quite strong. Today's market fall reflects the continuing uncertainties in the global economy and not any change in the fundamentals of the Indian economy.”

Reserve Bank governor Y.V. Reddy also assessed the situation and said he would take into account a possible slowdown in the US economy while reviewing the monetary policy later this month. Global financial markets have become much more uncertain than before, he said.

Singh confident

At a joint press conference with British Prime Minister Gorden Brown, Singh said, “I will like to assure the public that our government gives priority to sustained orderly growth of capital markets.”

Asked specifically to comment on the sensex, he said, “Fluctuations are part of the market forces, and I will not comment on that.”

Ministry advice

The finance ministry today asked investors to take informed and responsible decisions and not be led by market rumours or any unwarranted apprehensions.

The ministry added that banks had reported that “investments in the pipeline are robust and credit demand is high.”

It said a report prepared by the Economic Advisory Council of the Prime Minister had estimated that during 2007-08 the economy would grow by 8.9 per cent.

Corporate profits in the third quarter of 2007-08 continue to be buoyant. Direct tax revenues have shown an increase of 42.8 per cent so far (April to December, 2007).

The ministry also noted that most of Asia opened the year on a weak note with heavy selling pressure in most markets.

Comparing the major Asian market indices as on January 2 with their closing today, it said the Straits Times had fallen by 14.75 per cent, Hang Seng 13.58 per cent and the Nikkei was down 9.29 per cent. The corresponding figure for the sensex is 13.97 per cent.

Reddy’s review

“The global financial uncertainties were not entirely unanticipated but, yes, the intensity was not predicted nor was the duration expected,” Reddy said.

A number of global financial institutions such as Citigroup, the world's biggest bank, have posted considerable losses because of the US subprime crisis that erupted in July 2007. US Fed has already reduced interest rates and is likely to cut rates further to boost investor confidence and prevent the world's biggest economy from going into recession.

However, the rate cut last year led to a surge in capital inflows into emerging markets such as India, sending stock markets to record levels. Fears of a US recession today sent local benchmark BSE sensex into a tailspin as panic-stricken investors reduced exposure to high-risk investments.

Volatility index

Recently, the Securities and Exchange Board of India (Sebi) asked the exchanges to introduce a volatility index for investors. The volatility index would display the extent of volatility of the market in percentage terms, and might prove to be an effective guide for equity market investors.

“We are still in the process of setting up the volatility index for exchanges. We hope to introduce the index soon, but cannot specify any particular date for its implementation,” said a senior official of the Bombay Stock Exchange.