Accessibility links

Proposed Curb on Foreign Investors Causes India Stocks Plunge


Indian stock prices suffered one of their steepest ever plunges. The dive came after regulators announced they want to limit the recent flood of foreign investment in the market. VOA Correspondent Steve Herman reports from New Delhi that soothing words from India's finance minister appear to have calmed fearful investors.

The stock sell-off was prompted by the government's proposal to limit foreign investment after overseas buyers helped drive the Sensex index to a record high above 19,000.

After key indexes plunged more than nine percent in the opening minutes, trading was stopped for an hour in line with market "circuit-breaker" rules.

Finance Minister Palaniappan Chidambaram tried to soothe panicky sellers.

"There is no reason for any alarm at all," he said.

His words seemed to have their intended effect. Once trading resumed, prices began to recover. But the Sensex still finished the volatile day 336 points lower - a decline of less than two percent.

The proposed new regulations are meant to slow the recent heavy amount of stock buying from overseas. But the finance minister says they are not meant to keep overseas buyers out of the Indian market entirely.

"But for the present, it is important to moderate these capital flows," added Chidambaram.

Under the proposed new regulations, hedge funds and other offshore businesses that buy stocks through brokers would have to register with the Securities and Exchange Board as foreign institutional investors.

Indian regulators are nervous because under the present system they do not know who the actual stock buyers are. Brokers hold ownership and give the foreign buyers what are called participatory notes. The regulators are concerned that anonymous investors speculating in the market here could cause economic volatility.

XS
SM
MD
LG