The Telegraph
Since 1st March, 1999
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Market red in raid panic
Slow and sinking: Flooded Mumbai

Mumbai/Delhi, Sept. 22: Dalal Street went into a tailspin today as investors dumped stocks in panic sparked by a brushfire of rumours over tax raids on brokers and realtors.

The sensex swooned to 8221.64 at the end of a tense day, losing 265.5 points. It was the sharpest fall since the 564.71-point mayhem on May 17, 2004.

All frontline stocks sank as the nervousness over raids on realtors in Delhi and Gurgaon, and brokers in Ahmedabad strangled the bullish sentiment.

“It was nightmare on Dalal Street,” said Jagdish Malkani, a leading broker. A record Rs 97,000 crore of shareholder wealth evaporated in a day.

Heavyweights like ITC and Reliance, which had bucked yesterday’s decline, were badly mauled along with mid-cap and penny stocks.

“Share valuations were overstretched,” said Ramesh Damani, another prominent broker.

The government and market regulator Sebi scrambled to soothe frayed nerves by saying they had no evidence of market manipulation. They explained that the raids were part of routine investigations and weren’t nationwide.

They said the Prime Minister’s Office had not held talks on market volatility as reports had suggested.

Finance minister P. Chidambaram, away in New York, tried to quell fears, saying the capital market and banks were “well regulated”. Sebi chairman M. Damodaran, also in the US, said: “Investors should not be carried away by hype or day-to-day events.”

The market panicked on reports of investigation into hot money flows from overseas tax havens. There was talk of the IB probing political connections of the brokers who had made big gains on penny stocks.

But it was the tax raids 'with 300 sleuths hitting realtors and brokers ' that really set the nerves jangling.

In a press note issued later, the finance ministry said: “The searches were conducted at a few places in Gujarat as part of normal investigations carried out by the income-tax department.”

The ministry also denied that the visit by U.K. Sinha, joint secretary (capital markets), to Mumbai yesterday had anything to do with market investigation.

Where does the market go from here' Brokers like Malkani believe the heavyweights will bounce back as the economy and corporate earnings are robust.

But the Cassandras are back in business. Credit Lyonnais Securities Asia said it expected the sensex to tumble another 8 to 10 per cent.

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