FM soothes crest fallen market

Minutes after the carnage at the bourses, government on Wednesday said it is not in favour of banning Participatory Notes and hoped that "the initial sense of alarm in stock markets" will quieten as the day progresses.

"We are not in favour of banning participatory notes. We have not banned PNs, we have simply placed a cap on the proportion of money coming through PNs vis-a-vis overall assets under management or overall derivative position,"

The stock market crashed recorded the sharpest ever fall within minutes of opening on fears of market regulator Sebi's move to curb overseas derivative (participatory notes), but cut the losses by nearly half on assurances from Finance Minister P Chidambaram.

Before leaving for a week-long foreign tour, Chidambaram assured investors that there was no reason for panic or alarm. Fundamentals of the Indian economy have not changed within a day and corporates' profits for the second quarter were still very handsome, he said.

"Let me assure all investors what has been done is a step to moderate capital flows, which have become very copious, it is a culmination of long discussion between SEBI, RBI and the government," he said.

He said SEBI's proposals are just a consultation paper, but would become regulations with or without

some modifications.

Besides impacting the rupee, inflows contributed to very steep rate of rise in the markets. "(For) example, markets moved from 18,000 to 19,000 in the four trading sessions,

therefore it is in the interest of every one, be it retail investors, brokers, traders, big investors, that these inflows are moderated," he added.

He said, "Market sentiment is not a function of capital inflows alone. Even when we are speaking, a large number of FIIs are buying in the markets, therefore there is no reason for any panic or any sense of alarm," he said while expressing hope that markets would recover soon.

"Before the day is over, everybody will think coolly and things will quieten down," Chidambaram said. He also appealed to market commentators to be careful about their remarks, saying there is no reason or justification at all to make any alarmist remark.

On Tuesday, Sebi invited public comments on its proposals that PNs should not be issued to overseas investors for trading in Indian equity derivatives. The market watchdog has also proposed to impose certain limits on PNs issued for buying stocks in the spot market.

P Chidambaram addresses the media in New Delhi.

Photograph: Tauseef Mustafa/AFP/Getty Images