India Drops 9% on Crackdown

123jump.com Staff
17 Oct, 2007
New York City

Market regulator and Finance Minister in India orchestrated a series of steps to crackdown on anonymous trading. The recent sharp rise in market has attracted a flood of new investments from foreign investors many of them trade through derivative contracts, hiding true identity of the owners. Finance Minster backed a proposal to curb such trading and regulator SEBI proposed a series of steps after the market close.

[R]8:30AM New York – Markets in India drop nearly 9% on crackdown on anonymous trading.[/R]

Asian stocks fell after a week of sharp gains. India plunged nearly 10% during the session on new regulation requiring hedge funds investors to trade under accounts registered with the government.

India led the decliners with a fall of 1.8% followed by losses in Philippines of 1.5%, in South Korea and Thailand of 1.1%, and in Japan of 1.07%. Hong Kong led the gainers with a rise of 1.2% followed by increase of 0.9% in Singapore.

The Securities & Exchange Board of India said that it plans to limit anonymous trading conducted in the derivative market by international hedge funds through what is known as participatory notes. Regulators are worried that anonymous trading is inflating market values and may hurt small investors. The proposed plan will limit the exposure through derivative contracts and will require at least 40% collateral in the margin account. The owners of participatory notes will have eighteen months to transfer the securities held through derivative contract in their name and register with the regulator.

At the worst of the plunge Nifty CNX Index fell 9.3% to 5,143.20 and Sensex 30 index on Bombay Stock Exchange dropped 9.1% or 1,743.96 to 17,307.90 before the market were halted for one hour of trading.

Finance Minister P Chidambaram said that foreign investors are welcome to invest in India but said that international fund flows must be controlled. The government is worried that derivative contracts used by offshore investors may invite illegal sources of funds and may end up benefiting terrorist organization. The steep rise in rupee is also a concern.

SEBI, after the market close, announced a series of steps to curb trading through participatory notes and plans to implement new requirements on October 25th.

Rupee has appreciated 15% against dollar while currencies of other Asian nations have gained less than 8%. More than half of investments attracted to India’s stock market are through participatory notes, where investors can hide their true identity. International investment in stocks market has jumped to $17 billion from less than $11 billion a year ago. In the last three weeks alone investment through these anonymous notes was estimated to exceed $2.5 billion.


[R]6:00AM New York, 7:00PM Tokyo- Tokyo stocks decline led by a weakness in banks. Demand for services increased 1.3%.[/R]

In Tokyo trading Nikkei 225 shed 1.07% or 182.61 to 16,955.31 while the broader Topix Index fell 1.5% to 1,600.29. Banks led the decliners on the worries that U.S. mortgage market turmoil may have an impact on its economy and hurt earnings of banks in Japan.

Of the Nikkei 225 stocks 57 rose, 164 dropped, and 4 traded unchanged. Resona Holdings led decliners, falling 7.46%, followed by Shinsei Bank retreating 6.55%. Sanyo Electric slid 6.12% after abandoning plans to sell its semi-conductor business unit to a private equity group Advantage Partners which has failed to raise the 110 billion-yen on the constrained credit market.

Japan’s Ministry of Economy, Trade and Industry said that the Tertiary and Industry Activity, which measures demand for services increased 1.3% to a seasonally adjusted 111.3 in August, the highest since 1988. The index had declined to a downwardly revised 0.4% in July.

Of the eleven service sectors covered by the report, six were up. Wholesale and retail trade index increased 2.0%; electricity, gas, heat supply and water rose 8%; eating, drinking places and accommodation soared 3.7%; finance and insurance industry was up 1.1%, while transport added 1.3% and information and communications increased 0.9%.

Services, learning support, real estate, medical healthcare and welfare and compound services were down. Hot temperatures increased sales of air conditioners and apparel.

According to METI the value of equity trading in Japan had increased in August by 55% to a record 77.88 trillion-yen as investors unwound their positions on concerns of the risk posed by the U.S. housing slump.

Japan planned to spend 9 billion yen for gas and oil exploration along the Pacific Coast and the Sea of Japan, driving budget for natural resource development by 12% to 176 billion yen. Norway’s Petroleum Geo-Services ASA will deliver a $213million vessel for three-dimensional seismic surveys. Separately, Japanese officials from Itochu Corp, Mitsubishi Gas Chemicals, Mitsubishi Heavy Industry, Nippon Oil Exploration Limited, JGC Corp, LNG Japan, Cosmo Oil Company Limited and Sumitomo Mitsui Bank are in Papua New Guinea for a week long meeting to explore possible investment opportunities in the gas and oil sector.

Crude oil rose for the six day, gaining 1.7% to a record $87.61 per barrel. Oil companies however slumped. Inpex Holdings fell and Nippon Oil Corp tumbled.

Of the Nikkei 225 index shares Yahoo Japan led the gainers with a rise of 5.30%, followed by gains in Hino Motors of 3.49%, in Casio Computer of 3.46%, in Denki Kagaku of 3.28% and in Asahi Kasei Corp of 3.23%.

Resona Holdings led the decliners with fall of 7.46% followed by losses of 6.55% in Shinsei Bank, 6.12% in Sanyo Electric, 5.84% in Sumitomo Mitsui and 5.56% in Nomura Holdings. Mitsubishi UFJ Financial Group fell 4% and Mizuho Financial Group and 3.80%. Sanyo Electric fell after it aborted plans to sell its semiconductor business and now it will reorganize the business and work to improve operating margins. Sony lost 0.74% and Toyota Motor Corporation retreated 2.03%.

Exporters plunged as the yen firmed against the dollar, rising 116.73 from 116.78.

Banks fell in Tokyo trading after the U.S. Treasury Secretary Henry Paulson said that the housing market correction is likely to take longer than anticipated earlier and it poses a significant risk to the economy. He also cautioned that regulated banks are still grappling with the size of the problems and banks need to improve accounting of these assets.

The Securities and Exchange Board of India, known as SEBI, proposed to limit exposure in derivative market. International hedge funds are using participatory notes to invest in India and hide true identity from regulators. The recent crackdown will require hedge funds to transfer their holdings to accounts under their names registered with the authorities.

Sensex in Mumbai, India trading fell nearly 10% but managed to recover at a close with a loss of 1.8%. Stocks linked to emerging markets fell sharply on the news. JFE Holdings lost 3.8% to 7,670 yen, Mitsui O.S. K lost 3.5% to 1,930 yen.