SEBI''s mooted curbs on PN flows causes BSE, Nifty to hit lower circuit

17 October 2007

At the time of going to press the markets had recovered to 18364.

Curbing the flow of hot money into the country has side effects. Bulls discovered this to their cost, when market regulator SEBI placed limits on participatory notes. Ashwin Tombat reports

India''s stock market benchmark Sensex crashed by 1,743 points within the first few minutes of opening this morning (17 October 2007), prompting the suspension of trade for an hour. The BSE announced trading would be suspended for the day if the fall reached 15 per cent The National Stock Exchange''s (NSE''s) wide-based index Nifty also plunged 9.25 per cent to 5,658.90 points.

This is fallout of market regulator Securities and Exchange Board of India (SEBI) clamping down on anonymous participatory notes (PNs) to arrest the flood of foreign inflows. The fall came just days after finance minister P Chidambaram expressed surprise at shooting stock prices - the Sensex had shot up by 5,000 points in less than two months - and hoped that things would cool down.

Soon after the stock markets closed on hitting the down-circuit, Chidambaram said in a live telecast that the government was neither against PNs, nor was it banning them. Proposals to moderate portfolio investment by foreign investors were part of a series of steps to moderate capital inflows, he emphasised.

He said foreign investors were still welcome to invest in India through participatory notes, but it was important to moderate inflows at present and the decision was good for markets in the long term.