Rumours spook market, Govt clears air

Stung to the quick, the government said it would ask market regulator Securities and Exchange Board of India (SEBI) to look into the series of reports in some media publications over the last couple of days suggesting that Prime Minister Manmohan Singh and the PMO had ordered a probe into the continuous rise in the Sensex over last few weeks.

Prime Minister’s media advisor Sanjaya Baru said, ‘‘All the reports that appeared in the media (on PM and PMO stepping in, holding meetings and asking IB and the Finance ministry to probe into rise in the Sensex) are incorrect’’ and that ‘‘there were no such meetings held by the PMO’’.

Despite clarifications by late afternoon from the PMO, the fall intensified as the session progressed after rumours about income-tax raids on five Ahmedabad brokers hit the market. A clarification from the Finance ministry that the raids on brokers were not a nationwide one did not stem the fall.

The Sensex finally closed with a huge loss 3.1 per cent at 8,221.64, the biggest fall in the index in more than a year since the 565-point crash on May 17, 2004. Investor wealth—market capitalisation—plunged by a humongous Rs 1,16,000 crore ($26.40 billion) in a single day.

Dealers said selling came mainly from local operators, traders and some funds. Margin calls from banks and brokers accentuated the sell-off. There were many stocks that offered no exit opportunity as they were locked at their lower circuit filters.

A cross-section of analysts told The Indian Express that a correction was overdue in the market and did not give any cause for surprise. ‘‘This correction is a temporary setback, but healthy for the markets. A strong economy and good corporate performance should see the markets bouncing back,’’ said Kisan Ratilal Choksey, chairman, KR Choksey Shares and Securities.

The Sensex had risen by 750 points in the last 20 trading sessions without any correction. ‘‘This is just a correction…It may last for some days. The market had a huge run-up in the last few days. The fall has nothing to do with media reports about investigation and tough actions,’’ said Nandan Chakraborty, Head of Research, Enam Financial.

Indian market was the top gainer in Asia with a rise over 29 per cent — or 1,950 points—in the last eight months.

Over the past few days, the stock exchanges have tightened margin requirements and placed restrictions on trading in many stocks. Further, subdued to weak trend in global markets, following a fresh upward spike in global crude oil price too dampened sentiment.

Finance ministry sources confirmed to The Indian Express that around 50 penny stocks were under SEBI’s scanner and also that there was a meeting with DRI, SEBI and other agencies last week but this was with respect to the action taken after the last Joint Parliamentary Committee.

In fact, UK Sinha, joint secretary in the Finance ministry handling capital markets, clarified that the suggestions in the media that he was asked to dash off to Mumbai by the PMO on Wednesday to meet with SEBI officials were incorrect as his visit to Mumbai concerned a UTI board meeting.

Sanjaya Baru said that the ‘‘PM is confident that the Finance minister, SEBI and the RBI were doing a competent job’’, stressing there was no need for the PMO to step in the first place and that the Indian market is doing well by global standards. Both Finance Minister P Chidambaram and SEBI chairman M Damodaran are in the US.