Almost immediately after the markets opened, the Sensex plunged by over 1,000 points. The Reserve Bank of India (RBI) intervened to ease liquidity in the system by cutting the cash reserve ratio (the portion of deposits banks have to keep with the central bank) by another one per cent, thus taking the total reduction this week to 1.5 per cent, and releasing Rs 60,000 crore (over $ 12 billion) into the funds-starved system. In the backdrop of tight liquidity, the finance ministry cancelled a Rs 10,000 crore government borrowing plan.

Finance Minister P Chidambaram constituted a group comprising top bankers headed by Finance Secretary Arun Ramnathan to advise the government on liquidity requirements within a week. He also assured cash-strapped markets that the government would inject more funds into the system in the next 10-12 days through the supplementary demands for grants, which will come up for approval before Parliament later this month.

Ruling out any systemic problem, Securities & Exchange Board of India (SEBI) chairman C B Bhave said there was no unusual activity in the stock market, and no short selling by institutions in the cash market. Assuring more steps if needed, the RBI said, “market participants are assured that the Reserve Bank stands ready to respond swiftly to meet any liquidity requirements that may arise in the context of the highly volatile external situation.”

The new RBI measures and assurances by the government did not have much impact on the market, though. The BSE Sensex ended down 800.51 points or 7.07% to 10,527.86. The index lost 16 per cent during the week, its worst performance since 1990. It is now 10,678.91 points or 50.35% below its all-time high of 21,206.77, struck on January 10, 2008.

ICICI Bank plunged as much as 28 per cent to its lowest in almost four years, before trimming losses to 19 per cent after the bank’s joint managing director Chanda Kochhar said the bank has sufficient liquidity and it has never used rupee funds for its international growth initiatives.

Cutting the CRR to the 7.50 per cent level, the RBI said, “In the context of the abrupt changes in the international financial environment, it is important to note that the macroeconomic fundamentals of the Indian economy are strong and resilient and that India’s financial system is sound, well-capitalised and well-regulated.” Since Monday’s 50-basis point CRR cut, the global situation has worsened further. “International stock markets and money markets had been adversely affected in a significant manner,” the RBI said.

Bank bailouts, liquidity injections and interest rate cuts across the world failed to quell global investor anxiety. Asian and European stocks tumbled — Thailand fell 9.6 per cent, Singapore 7.3 per cent, Philippines 8.3 per cent and Hong Kong 7.2 per cent. Japan’s Nikkei share average tumbled 9.6 per cent, its biggest rout since 1987. Trading was stopped in Austria, Russia, Iceland, Romania, Indonesia and Ukraine, while Milan suspended share dealings in nearly half of its stocks because of excessive losses. The latest woes in Europe came after the Dow Jones index in the US closed 679 points, or 7.3 per cent lower, at 8,579.19 on Thursday, its first close below 9,000 in five years.

Meanwhile, the RBI has said it “would respond swiftly and even preemptively to any adverse external developments impinging on domestic financial stability, price stability and inflation expectations and the continuation of the growth momentum of the Indian economy.”

Experts don’t rule out a cut in policy rates (like bank rate, repo and reverse repo rates). “Given the worsening global situation, cuts are not ruled out. However, with growth in M3 (money supply) at 21%, credit at 26% and inflation at 12%, the RBI has little leeway unless a sharp fall in commodity prices results in quicker easing in inflation to single digit levels,” said Rohini Malkani, Economist, Citigroup India.

THE FALLING

DOW JONES Industrial ended Thursday 679 points (7.3%) down, taking losses in last 6 trading sessions to 20%. Opened even lower on Friday; was down 410 points (4.78%) in choppy trade at press time

EUROPEAN MARKETS ended deep in the red on

Friday: FTSE was down 8.85%, DAX down 7.01%, CAC40 down 7.73%

ASIAN MAYHEM

continued

Thailand – 9.6%

Japan – 9.6%

Philippines – 8.3%

Singapore – 7.3%

Hong Kong – 7.2%

S Korea – 4.1%

Malaysia – 3.6%

China – 3.6%

EXCHANGES in Russia, Austria, Indonesia, Iceland, Romania, Ukraine and Italy either shut down or suspended trading

WHAT THEY SAID

Govt will inject more funds into the system within 10-12 days through supplementary demands for grants which will come before Parliament this month.

P Chidambaram, Finance Minister

I don’t think we are heading towards recession. India will register a growth rate of 7.5 to 8 per cent this fiscal… Though capital outflows are putting pressure on the liquidity and the rupee, our banking system has not been affected to the same degree as in the West… The Reserve Bank has taken several measures… the government is watching the situation on a day-to-day and hour-to-hour basis.

Manmohan Singh, Prime Minister

The United States government is acting… to resolve this crisis and restore stability. Uncertainty has led to anxiety… that is understandable. The plan we are executing is aggressive. It is the right plan, but it will take time to have its full impact.

George W Bush, U S President

Bush will meet with finance ministers and banking heads of G 7 countries when they gather in Washington today to formulate a coordinated response to the crisis

INDIA INDICATORS

SENSEX DOWN 800 POINTS, HALF ITS VALUE GONE IN 9 MONTHS

7% down, sinks to 10,527 points on Friday, at 2-year low 10,678.91 points (50.35%) down from Jan 10, 2008 high of 21,206.77 2,527 points (19.36%) lost in October alone Rs 243,200 crore lopped off total market cap on Friday Rs 417,000 crore investor wealth lost this week as market cap fell from Rs 37.96 lakh crore to Rs 33.79 lakh crore

GOLD AT LIFETIME HIGH…

Shoots to Rs 14,200/10g as meltdown drives investors towards bullion; could touch Rs 15,000 by Diwali

…RUPEE AT LIFETIME LOW

Sank to 49.30 against dollar before aggressive RBI selling lifted it to 48.38/43, still lower than Thursday

INDUSTRY HOBBLING…

August industrial growth plunged to 10-year low of 1.3% from 10.9% in corresponding period last year

…INFLATION SLOWING

Data released Friday showed inflation at 11.80%; can help authorities ease liquidity and interest rates