New Delhi/Mumbai, Sept. 16: With the sensex showing no signs of tiring in its rampant bull run, the government has ordered the capital market and banking regulators 'Sebi and Reserve Bank ' and its tax sleuths to keep a close watch on the working of foreign funds, small and medium companies that are floating shares for the first time, and borrowers of capital who are suspected to be funnelling cash into a market that appears to have gone somewhat crazy.
Even as the bellwether index was hovering just under 8400, the finance ministry has been holding talks with the regulators to make sure that no scam is brewing below the arclights of vi`gilance. It doesn’t want a repeat of the market meltdowns of 1992 and 2000 that saw investors’ paper fortunes gutted by a lethal combination of greed and market shenanigans.
On Friday, the BSE’s 30-share sensex ended 1.17 per cent higher at 8380.96, just off the peak of 8388.80. The index has gained 4 per cent during the week.
When the sensex crossed the 8000-mark on September 8, finance minister P. Chidambaram said he wasn’t worried because the price-earnings ratios of the key market indices were ruling within a comfortable range of 14.5 to 15.5 per cent.
But the real big worry has been the sharp run-up in the prices of penny stocks ' shares that have ruled well below their par value between Re 1 and Rs 5 for most of last year. “There are some stocks that have risen substantially but their net worth is low. We are going to monitor them also,” an official said.
The fear is that some market manipulators and not so reputable foreign funds have been ratcheting up the prices of small-cap and mid-cap stocks, taking advantage of the irrational exuberance and the gullibility of lay investors.
“There have been interesting movements that the stock market data clearly shows up. We want these investigated,” top North Block officials said.
There has been a surge in borrowings and capital raising by corporate houses with no ostensible end use plan for funds and North Block is worried that a part of this cash stockpile has been diverted to grease the wheels of the market roller-coaster.
“There is suddenly a lot of domestic play by heavy investors. This needs to be investigated properly,” officials said. The finance ministry officials are also keeping a sharp vigil on the currency market, an indicator of fund flows.
Sebi officials in Mumbai refused to confirm whether they had received any directive to step up the vigilance efforts. Sebi chief M. Damodaran was away in New Delhi. Early this week, Damodaran had indicated that the regulator and stock exchange surveillance officials were taking a fresh look at penny stocks.