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Indian share market sees 9% slump | Indian share market sees 9% slump |
(about 1 hour later) | |
Trading on India's main stock index, the Sensex, was suspended briefly on Wednesday, after the market slumped 9%. | |
The fall came after the stock market regulator proposed urgent curbs on the flow of foreign funds into shares, in order to stop the market overheating. | |
The Sensex sank to 17,544.15, after Tuesday's record high of 19,174.45, while the rupee also lost value. Trading resumed after an hour. | |
India's finance minister said that there was no need for alarm. | India's finance minister said that there was no need for alarm. |
Some of the early losses were clawed back when trading resumed, with the Sensex down 6.1% at 17,799.69. | |
'Abundant investment' | 'Abundant investment' |
The regulator's recommendation relates to participatory notes - a form of investment used by hedge funds and other foreign investors who are not registered in India. | The regulator's recommendation relates to participatory notes - a form of investment used by hedge funds and other foreign investors who are not registered in India. |
Investor sentiment is likely to weaken considerably as an important source of potential inflows has likely been plugged Rajeev Malik, JP Morgan | |
Analysts say the proposal may be aimed at countering a surge in foreign money that has caused Indian share prices to rise sharply - worrying some policy makers about its potential impact on the broader economy. | |
Finance minister P Chidambaram said that foreign investment was still welcome and that a ban on the notes was not intended. | |
"But presently it is important to moderate capital flows, which are getting very copious and abundant," he said. | "But presently it is important to moderate capital flows, which are getting very copious and abundant," he said. |
Analysts at JP Morgan suggested that of the $17bn of foreign funds invested in India so far this year, about $10bn has been in participatory notes. | Analysts at JP Morgan suggested that of the $17bn of foreign funds invested in India so far this year, about $10bn has been in participatory notes. |
"Investor sentiment is likely to weaken considerably as an important source of potential inflows has likely been plugged," said Rajeev Malik, an economist at the firm. | "Investor sentiment is likely to weaken considerably as an important source of potential inflows has likely been plugged," said Rajeev Malik, an economist at the firm. |
And Shitin Desai of DSP Merrill Lynch said that the market was reacting nervously to a proposed regulatory move. | |
"This is the first step towards tighter norms for overseas funds, which is healthy." | |
India is seen by many investors as one of the safest havens among the emerging markets as investors try to tap into one of the world's best-performing economies. | India is seen by many investors as one of the safest havens among the emerging markets as investors try to tap into one of the world's best-performing economies. |
The rupee has risen more than 11% against the US dollar since the start of the year. It stood at 39.31 to the dollar at Tuesday's close, but had weakened to 39.90 early on Wednesday. |