Finance Ministry blames brokers for market crash

Brokers trading on proprietary account may have come under pressure and sold, top officials said. Track the Sensex

Seeking to shift blame on the brokers community for the worst ever crash in the stock market, which lost over 1,100 points, Finance Ministry on Monday said the impact of CBDT circular on the volatility was doubtful.

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In fact, Foreign Institutional Investors and Mutual Funds are net buyers since this morning, senior Finance Ministry officials told reporters after an emergency meeting with Finance Minister P Chidambaram.

"It appears that some brokers trading on the proprietary account may have come under margin pressure and, therefore, may have sold," Economic Affairs Secretary Ashok Jha said.

Jha said the effect of speculative report about the CBDT draft circular on the volatility in capital market is doubtful.

He said the draft circular made no reference to FIIs, who are governed by separate provisions of the Income Tax Act and the relevant Double Taxation Avoidance Agreement.

A variety of other factors including the decline in global markets, fall in metal prices, the hardening of interest rates and the comparative effectiveness of other emerging stock markets also played a role in today's market performance.

Emphasising the sound fundamentals of the Indian economy, Jha said the GDP growth rate in 2005-06 was estimated at 8.1 per cent and the growth story is expected to continue this fiscal too.

To substantiate his argument he said the foreign reserves are at 163 billion dollars, inflation stands contained at 4 per cent and manufacturing growth is 9.1 per cent.