BUSINESS

Market crash: BJP blames Sebi, FM

By BS Reporter in Mumbai
January 22, 2008 12:24 IST
Former MP and a member of the BJP's National Executive Kirit Somaya on Monday alleged that overvaluation of initial public offers (IPOs), over-speculation and faulty settlement mechanism were behind Monday's stock market crash.

"The issue of the market crash will be taken up at the BJP's national executive, which is meeting on Sunday, and a strategy will be devised on how to take Finance Minister P Chidambaram to task on this issue," he said.

Somaya said around 20 million retail investors and 40 million investors in mutual funds and unit-linked pension schemes lost large amounts of money. He accused the finance minister and Sebi of making "extra efforts" to ensure the stock market rises after every major fall.

He said had Sebi and the finance ministry allowed the markets to find their natural level after the sub-prime crisis in the US, the markets would not have seen such a bloodbath on a single day.

"Another concern is financing of margin money of big players by banks and non-banking financial institutions which is completely non-transparent," he said.

Somaya said after Sebi allowed change in IPOs' valuation norms from the one based on profits of the past three years to profit projections for the next 10 years, the Parliament's standing committee suggested some safeguards for the retail investors.

However, Sebi allowed a change to the new system without these safeguards, he added.

Sebi also allowed introduction of futures and options without ensuring online clearing of cheques by banks, which Somaya said created a faulty settlement system.

"Thousands of investors who wanted to exit the market after Friday's crash couldn't as their cheques could not be cleared," he said. "Thus, they either lost their margin money or margin shares," he said.

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  • BS Reporter in Mumbai
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