Sensex records biggest intra-day drop; claws back

Market regulator Sebi frowns on foreign funds; jittery market sinks 1,700 pts, but closes only 336 pts down, reports MC Vaijayanthi.

It was a crazy day, the kind that gives investors heart attacks and sharp traders their year’s bonus in a fraction of a second.

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Spooked by market regulator Sebi’s move to curb foreign funds flowing into the market through participatory notes, markets went into freefall. The Sensex recorded both the biggest-ever intra-day drop — a staggering 1,744 points — as well as the second-biggest bounceback in its history, on the same day.

The events were separated by an hour’s halt in trading, or a circuit-breaker, which gets triggered automatically when indices fall by over 10%. This was only the third time since the mechanism was created that exchange authorities halted trading.

Before the markets reopened at 10.55 am, Finance Minister P Chidambaram calmed the waters. “Let me assure investors that what has been done is to moderate capital flows, which have become very copious,” he said. Sebi chief M Damadoran pointed out that there would be no curbs on participatory notes as such — only on those issued by unregistered entities, where the source of funds was not known.

P-notes are instruments used by foreign investors not registered with the market regulator to invest in the markets.

The Sensex rebounded and closed the day at 18,715, a fall of 1.76 per cent from the previous close of 19,051.86.

Experts welcomed the Sebi move as it would cut volatility in the markets. “There is likely to be a negative impact in the short term. However, the measures are unlikely to have a large impact in the medium term…,” Lehman Brothers, global investment bank, said in a note.