Finance Minister P Chidambaram on Tuesday sought to calm panic-stricken investors, saying the government and the central bank were doing everything to bring orderly conditions to the stock market.
Chidambaram urged investors not to get swayed by worries about a possible recession in the US and its spillover effect on the global economy.
“Worries of western world should not be allowed to overwhelm us,” he said. “Our economy is very different from some economies of developed countries …(it) is a strong economy and corporate sector is very strong.”
His comments came shortly after Bombay Stock Exchange suspended trading for one hour following a sharp plunge in share prices.
“We had anticipated the market to open on a downward trend and hit the circuit breaker,” Chidambaram said. “My advice to investors is to stay calm…I am sure investors will take informed and matured decisions and not give any room to unwarranted apprehensions and market rumours.”
The market recovered later in the day, but still closed 5 percent lower than Monday.
It was not immediately clear domestic financial institutions such as LIC and UTI began buying after Chidambaram made the comments, but the finance minister said measures were being taken to ensure adequate liquidity.
“I am assured by the RBI and all the banks that enough liquidity will be provided to brokers and market players. Liquidity will not be an issue,” he said.
Chidambaram, however, denied that the government was asking any institution to pump money into the stock market. “We are not advising institutions to do this or that. Institutions are good judge of what are valuations today,” he said
Chidambaram left the country later in the day to attend the World Economic Forum’s annual meeting in Davos, Switzerland, where the possible of the US getting into a recession would likely be the focus of discussions among policy makers from around the world.
Meanwhile, the International Monetary Fund on Monday warned that the global economic situation was "serious" and could impact the world's emerging economies.
“Fortunately emerging nations continue to have fairly strong growth and to drive growth worldwide. But it is not impossible that even in emerging nations it could have a certain effect, that growth could be weaker than expected,” Dominique Strauss-Kahn, IMF’s managing director, said in Paris.