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New rule and cheaper oil sink Sensex

india Updated: Sep 12, 2006 01:47 IST

Trading is restricted to those with PAN cards, announcement triggers downward spiral; global fears also at work

INDIAN STOCKS on Monday recorded the biggest fall since the crash on July 17, taking investors by surprise. Almost all indices - from the Sensex to mid- and small-cap indices -- dropped by over 3 per cent.

The Sensex fell by 368 points (3.09 per cent) to close at 11,550.69. The BSE metals index fell over 5 per cent. The National Stock Exchange's 50-share Nifty lost 105.3 points to close at 3,366.15.

The markets were responding to a combination of factors -- among them, global fears of a US meltdown and a drop in oil and metal prices.

And then there was the 'PAN card' factor. The Securities and Exchange Board of India (Sebi), the market regulator, has mandated that everyone trading in the cash segment of the market must have Permanent Account Number (PAN) cards issued by the income-tax department. It has warned that depository accounts -- mandatory for electronic trading in 'dematerialised' shares held in digital form -- will be deactivated if account-holders do not furnish PAN details by October 1.

V.K. Sharma of Anagram Stockbroking said almost one-third of the investors in Indian stock markets did not hold PAN cards. If these investors do not get their cards, they will not be able to trade after October 1. "Many people will be out of the market for a few weeks," said  Sharma. "That is one reason why many booked profits at this stage to cover potential losses."

Meanwhile, foreign institutional investors (FIIs) continue to flock to India.

According to SEBI data, 22 new FIIs registered in August. The trend has continued in September, with four FIIs joining the pack in the first five working days of the month.

The existing FIIs have, however, been booking profits, spurring across-the-board selling. On Thursday and Friday last week, they got out of positions worth almost Rs 2,000 crore in the futures market. "We are, however, looking at it as regular profit taking," said Manish Sonthalia of Motilal Oswal.