Bulls retaliate, Sensex up 3.79pc

Sensex lost 15.79 pc in five sessions after last Tuesday’s attack

ENS ECONOMIC BUREAU

MUMBAI, SEPTEMBER 18: After a severe whipping in the last five sessions, Indian markets made a smart turnaround as investors who made a nervous exit after the US terrorist attacks came back to buy stocks on Tuesday. With US markets falling on the expected lines, Asian markets staging a recovery and the Reserve Bank of India allowing margin trading, it was a relief day for local markets with the benchmark Sensex bouncing back to 2,782.47 with a rise of 101.49 points, or 3.79 per cent.

Though Dow (down by 7.13 per cent) and Nasdaq of the US suffered substantially, the losses were much below what was feared by the market analysts and this provided local markets some respite, attracting domestic funds to pick up stocks at their lowest levels. The change in the sentiment was strongly aided by a stock upsurge across Asia.

Soon after reports started trickling in on the bourses that RBI will permit bank financing to stock brokers for margin trading, the market staged a recovery from its lower levels. As per the new plan, bank finance will be made available for margin trading in actively traded shares comprising the indices like BSE Sensex and S&P CNX Nifty. Banks’ exposure to the capital market will be within their existing limit of the overall 5 per cent.

However, uncertainty continues to prevail in the markets. A declaration by Afghanistan’s ruling Taliban movement of a holy war against the US merely underlined the uncertainty facing investors as they try to grasp the economic consequences of last week’s unprecedented attacks. “This is a bit of a relief rally, based on the fact that US markets reopened without a hitch and that the falls were not as severe as had been expected. But people are not convinced that we’ve seen the worst of the losses,” said NSE dealer Venkat Aiyar.

Moreover, contrary to reports, FIIs have not sold heavily in the last four sessions. According to Sebi figures, FIIs sold equities worth Rs 294 crore on Wednesday, Thursday, Friday and Monday. “This is not a big outflow of funds... of course they were sellers but not in a big scale as everybody thought,” said a fund manager.

The volume showed a sharp rise to about Rs 1419 crore from 960 crore on the BSE. In the specified group, 159 including 26 index-based counters registered sharp gains while 16 others closed lower. HLL spurted by 17.40 to 205.25, HPCL by 8.95 to 105.05, ITC by 19.40 to 642.05, RPL by 2.50 to 28.80, Grasim by 12.80 to 261.20, GACL by 8.60 to 149.65, MTNL by 3.80 to 107.60, SBI by 3.30 to 160, TELCO by 1.90 to 65.35, TISCO by 2.40 to 73.95, Infosys Tech by 33.80 to 2651.95, Satyam Computer by 11.25 to 138.20 and Zee Telefilms by 7.35 to 85.50.

RBI allows banks to finance margin trading

ENS ECONOMIC BUREAU

MUMBAI, SEPTEMBER 18: Less than a year after the scam led by Ketan Parekh broke out, the banking regulator has relaxed the norms governing bank financing of stock trading in a bid to arrest the slide in the capital market. The Reserve Bank of India (RBI) has decided to allow banks to finance margin trading in equities within the overall existing ceiling of bank exposure to the capital market. But Bankers are skeptical about the latest move as many banks had lost heavily in the stock crash earlier this year.

“This would allow banks to finance stock brokers for the purpose of margins trading in actively traded scrips forming part of NSE-Nifty and BSE-Sensex,” RBI said in a notification. The decision was announced after a meeting of the technical committee consisting representatives of the RBI and Sebi.

The norms for financing margin trading in equities would be announced shortly, the RBI said, adding that the guidelines would be revised in the light of experience after 60 days of first anouncement. The banks would be required to maintain a minimum margin of 40 per cent, the RBI said.

Commenting on the outcome of the meeting, Sebi chairman DR Mehta said, “The committee approved the margin trading in today’s meeting and margin for brokers has been kept at 40 per cent. The RBI will frame the detailed guidelines shortly.” On the broad modalities of the margin trading, Mehta said “The funds will flow from banks to brokers and from there it will flow to clients. The client will have to pay 50 per cent to the brokers.”

However, the bankers do not seem to be excited about the new central bank proposal to shore up the sagging capital market. Banks had recently burnt their fingers by lending against infotech stocks in 2000-01 as these stocks had lost their values by 90 per cent in some cases. Some banks have lost heavily as they have advanced up to 50 per cent of the then prervailing market price of the scrips before the meltdown in these stocks began last fiscal.