Indian stock markets suffer unprecedented intra-day meltdown
Mumbai, May 17:
India’s stock market took the biggest plunge in its 129-year history on Monday as investors panicked over how communist parties would influence the policy of the incoming coalition government of Sonia Gandhi. Stock market regulators halted trading twice during the day and the government reportedly instructed state-run financial institutions to buy heavily into the market to stop the tumbling share prices. The market partially rebounded later in the day.
In the biggest ever intraday slide - the benchmark index of the Bombay Stock Exchange, the Sensex, tumbled to 4282.98 points, down 15.52 per cent, before trading was suspended for the second time. The Nifty index of the National Stock Exchange, the country’s largest, which opened in 1994, plunged 17.47 per cent. The Sensex, closed Monday at 4505.16 points, down 11.14 per cent from Friday, and the Nifty closed 12.24 per cent lower, at 1388.75 points.
Earlier Monday, the Securities and Exchange Board of India ordered suspension of trading twice as stock prices tumbled more than 15 per cent on the two main bourses of the country.
Share prices began recovering later Monday when markets resumed trading for the third time. The Sensex and Nifty recovered, reversing nearly a third of the losses suffered in early trading. The stock market crash also triggered a similar reaction in the currency market. The rupee plunged to an eight month low of 46 to the dollar during trading Monday, but recovered later after the central bank intervened.
Share prices have been on a downward spiral since Thursday, when vote counting for the April-May national elections showed a stunning defeat for Prime Minister Atal Bihari Vajpayee’s National Democratic Alliance. Election results showed the next government would be headed by the Congress party. But it needs the support of India’s communist parties, which the business world fears could put pressure on the Congress to reverse the market-friendly policies of the previous government. The fall in share prices since Thursday has wiped out more than 2 trillion rupees ($45 billion) in market capital, brokers said citing unofficial figures.
Outgoing Indian finance minister Jaswant Singh said he could do very little to intervene as he is just “a namesake finance minister.” Instead, he said stock market regulators and the central bank should keep a close watch on the situation. Hundreds of small investors gathered around the Bombay Stock Exchange, blaming their losses on the new government and shouting slogans against the Congress party and its leftist allies. “Down with Sonia Gandhi,” they shouted. By midday, both the Congress party and the leftists were declaring their support for a business-friendly environment. Manmohan Singh, a Congress party official who was the architect of India’s economic liberalization policies, scrambled to reassure the markets, saying the new government would be pro-investment.
“There is absolutely no need for panic in the financial markets,” he told reporters. “There will be stability and transparency in all policies.” Singh said the new government would not hesitate to take action against people who “manipulate the market and create unnecessary panic.” Brokers said volatility in the market would continue until the new government’s policies are made clear.