NEWS

Indian Stock Markets Suspended As Market Crashes

October 17, 2007
Aaman Lamba

Irrational exuberance and greed met their match on the Indian stock markets this morning. The markets opened negative, and then the BSE Sensex fell 1,500 points, 9.15%, before the BSE suspended trading for one hour.

Theories behind the fall can range from the breakneck run up over the last few weeks to the restrictions planned by SEBI on foreign participatory notes (PNs) as a means of foreign investment. The regulator felt a bubble had built up and it should have acted sooner. The Committee on Capital Account has recommended a ban on PNs and within one-year allowed PNs to run-off. The plan would be implemented in four days unless the feedback received is strongly against the move. The P-Notes are over $90 billion, close to 9% of the total Indian market cap.

The international investment community may get scared off India in particular and emerging markets in general by such a move. The hot money will move out, although the main FIIs will likely get an alternative route to invest directly. While this is a draft guideline and open to comments, the markets have a tendency to take rumor as established fact and trade on that basis. This might be contrary to the 'efficient markets' hypothesis, but Mr. Market has never been too much of a fan of theories. Benoit Mandelbrot showed quite convincingly the shortcomings of the efficient markets hypothesis and in a year when the Nobel Prize for Economics was once again given for work related to this stream of thought, it might be time for mainstream economists to be tarred and feathered out of their comfortable university chairs.

The drop comes close to the twentieth anniversary of Black Monday, the over 10% decline in US markets on Oct 19, 1987. It should serve to educate some and embolden the foolhardy in this game of liar's poker.

Markets are set to reopen in another half-hour, so watch this space.

Aaman Lamba is the Publisher of Desicritics.org, a Blogcritics network site. He also blogs, more infrequently nowadays, at Audit Trails Of Self
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Indian Stock Markets Suspended As Market Crashes

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Author: Aaman Lamba

 

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#1
Sanjay
October 17, 2007
02:19 AM

Maybe it's the collapse of the Nuclear Deal?

#2
Aaman
URL
October 17, 2007
02:24 AM

quite likely, it's the overall Communist bear hug

#3
Adventurer
October 17, 2007
07:20 AM

Now, don't target the already-haunted communists, poor fellows don't even make enough money for themselves, try the world to be seen as patriotic and concerned, yet fall flat!!

#4
Ruvy in Jerusalem
October 17, 2007
08:38 AM

Is the market still in a problem mode in India?

#5
SK
October 17, 2007
11:20 AM

Hi There,

You missed a couple of points:

1)only PNs with derivatives as underlying assets were banned.

2)They have the option to be unwound over 18 months (last 2 months inflows $6.5 billion) so not that big a burden

3)Foren institution r invited to be registered as FIIs by the SEBI

4)Most of PNs in last few months was speculation on the NIFTY/SENSEX futures.Highly volataile

So they r aiming to curb volataility rather than hinder the investers(both local n foren)

Cheers

RALLY worth 1400 pts



#6
Aaman
URL
October 17, 2007
12:32 PM

The data I have seen shows the problem is far worse than you describe, but I'll let you bask in your moment of relief:)

#7
ASHA DHODY
October 17, 2007
12:42 PM

I dont understand shares or the market or anything connected with ups and down connected with it. A strange incident connected with today's market happened yesterday. I woke up yesterday with a gut feeling that the market would fall drastically,so strong was the feeling that before the opening bell I insisted that my husband should pull out all his money to the last penny. For a change he took my advice andpulled out all his money .
He was thrilled this morning seeing the drastic fall in the market. Moral of the story do'nt always turn a deaf ear to your wife's advice she may be right too

#8
Ruvy in Jerusalem
October 17, 2007
03:59 PM

Alright, Aaman;

You gave SK the moment of enjoyment. What's your lowdown on what is happening to the market in your country?

#9
Sanjay
October 17, 2007
04:07 PM

Aaman, don't randomly do name-dropping by citing Benoit Mandelbrot. He's more famous for his fractal geometry than his experience in economics.

If you want, you can cite the recent Nobel laureates in economics, and their Mechanical Design Theory:

http://www.businessweek.com/bwdaily/dnflash/content/oct2007/db20071015_488815.htm

This does indeed point out some flaws in free market economics, but free market advocates point out that the flaws in free markets are easier to correct than the flaws in controlled command economies.

#10
Sanjay
October 17, 2007
04:12 PM

Aaman, don't randomly do name-dropping by citing Benoit Mandelbrot. He's more famous for his fractal geometry than his experience in economics.

If you want, you can cite the recent Nobel laureates in economics, and their Mechanical Design Theory.

This does indeed point out some flaws in free market economics, but free market advocates point out that the flaws in free markets are easier to correct than the flaws in controlled command economies.

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