Calm has returned to bourses, claims relieved FM

NEW DELHI: A relieved finance minister P Chidambaram on Tuesday claimed that “calm and order appears to have returned” to the stock markets in the country.

He added that India has been “one of the best performing emerging markets in the world” in the last two years.

Making a statement in Rajya Sabha on the tumultuous events of the last one week on the bourses, Chidambaram said the regulatory system in place worked well and stock exchanges have reported that all players in the market have met their payment commitments despite the volatility in stock prices.

He assured Parliament that “the government and the Securities and Exchange Board of India (Sebi), besides other regulators, will take necessary steps from time to time to ensure that the capital market remains well regulated.”

Chidambaram attributed the stock meltdown in India to a host of global factors. But now that “calm has returned”, he advised “genuine long-term investors” to stay invested. He termed the past week’s stock market downslide as “sharp correction”.

He said data from the markets received on Monday confirm that mutual funds have been net buyers. Even FIIs have been overall net buyers with large purchases in the derivatives market.

Genuine retail long-term investors are not affected either by margin pressure or by this sudden fall. In order to enable highly leveraged participants to meet margin requirements banks have provided adequate liquidity, he added.

“Over the last one week, the events in the global markets, especially movements in the commodity markets, have brought sharp volatility to the stock markets in many emerging markets. Markets — both in the developed world as well as in the emerging economies — have seen sharp corrections.

There has been a decline in Russia, China, Korea, Brazil and Indonesia. India also saw considerable volatility as part of these global events. The last two days of the previous week saw a fairly sharp correction in the stock markets in India,” the finance minister pointed out.

Describing what happened on Monday, Chidambaram said: “The market sentiments on Monday were weak and, consequently, the markets began to fall. Sensex recorded a level of 12,217 on May 17, 2006.

On the next day it declined to 11,391. On May 19, 2006 it lost another 452 points to close at 10,938. On May 22, 2006 markets hit a 10% circuit breaker at 11:56 a.m. when it reached 9,826 and as per procedure trading was suspended for an hour till 12:56 p.m. Trading resumed thereafter at 12:56 p.m. and the markets rallied smartly, gained 655 points and closed at 10,481.”

Chidambaram then went on to provide a perspective. “I would like to inform the Hon’ble members that the Sensex which was at 4,505 on May 17, 2004 recorded a secular rise to reach an all time high of 12,612 on May 10, 2006.

In fact even at yesterday’s level, compared to May 17, 2004, there is an increase of 133%. Given this increase, India is one of the best performing emerging markets in the world. The correction, with reference to the peak level as of yesterday, was about 16.9%.”

Chidambaram said for some time now, experts have been suggesting that a technical correction of the market was unavoidable.

The correction, however, happened to be more than expected, and somewhat disorderly, on account of various factors including the decline in global markets, the decline in metal prices, the hardening of interest rates and the comparative attractiveness of other emerging stock markets.

“The fall got exacerbated on Monday presumably on the inability of some traders who were highly leveraged, to meet margin calls within time”, he said.