Bombay Stock Exchange Trading Curbs

Indian Stocks, Rupee Slump; Regulator Proposes Investment Curbs

India's stocks tumbled, shutting down the Bombay Stock Exchange for an hour.The rupee fell the most in two months after regulators proposed restrictions on investments favored by global hedge funds.

The benchmark Sensex index dropped as much as 9.2 percent after the Securities & Exchange Board of India said late yesterday it plans to limit trading by investors who buy shares anonymously, using derivatives known as participatory notes. Record share purchases had driven the Sensex up 38 percent this year to an all-time high and fueled a 12.5 percent gain in the rupee against the dollar.

Finance Minister Palaniappan Chidambaram said the rules were aimed at moderating capital inflows that fueled a ``very steep rise'' in stocks. The central bank bought a record $39.9 billion in the eight months through August to curb gains in the rupee that have reduced earnings at exporters including Tata Consultancy Services Ltd., the country's biggest software maker. There's too much of a hot money.

The Bombay Stock Exchange Sensitive Index of 30 companies, or Sensex, fell as low as 17,307.90, before trading down 4.1 percent at 18,276.70 as of 12:20 p.m. in Mumbai. ICICI Bank Ltd., India's biggest lender by market value, fell as much as 12.5 percent and traded 7.6 percent lower at 1069.15 rupees. Reliance Industries Ltd., the nation's biggest company, dropped 3 percent to 2568 rupees, rebounding from a 14 percent slump.

The rupee fell as much as 1.6 percent to 39.97 per dollar before trading at 39.715, according to data compiled by Bloomberg. The currency reached 39.27 on Oct. 11, the highest since February 1998.

Slowing Flows
Regulators will have to consider restrictions to strengthen market oversight.There is concerned that investment bubbles are fueling inflation.

More than half of the $17 billion of the net purchases of Indian stocks this year may have been through the use of derivatives known as participatory notes, JPMorgan Chase & Co. estimates. The notes, which change in value depending on the performance of the underlying securities, provide hedge funds anonymity in their investment.

The ``proposed measures would constitute restrictions on the issuance of participatory notes to offshore investors and effectively plug an important source of equity inflows.''

Seeking Response
The regulator suggested foreign institutional investors may not be allowed to issue or renew offshore derivative instruments and will be required to extinguish existing participatory notes in 18 months. It sought a response to proposals by Oct. 20.
``The government was getting uncomfortable with the sharp run, which was creating a bubble,'' said Jayesh Shroff, who helps manage the equivalent of about $6.4 billion at SBI Funds Management Pvt. in Mumbai.

India Economy
India's growth, the second-fastest among the world's 20 major economies, is luring money from abroad. The flows accelerated after the U.S. Federal Reserve's Sept. 18 interest rate cut prompted global funds to chase higher returns.

The rupee's surge helped cut India's inflation rate to an annual rate of 3.4 percent in September, from a two-year high of 6.7 percent in January. Price increases will rebound to 5 percent by March next year, according to the median estimate of 9 economists surveyed by Bloomberg.
Overseas investors bought $8.2 billion more of Indian stocks than they sold since the Fed's decision, compared with $1.4 billion in the month preceding that, according to data provided by the Securities & Exchange Board of India. Their net purchases this year were at a record $17 billion.

Derivatives are contracts whose value is derived from stocks, bonds, loans, currencies or commodities or linked to specific events such as changes in interest rates or the weather.
``The Indian stock regulations have made people worried about how that's going to affect the flow of money,'' said Yasuhiro Miyata, who helps oversee the equivalent of about $17 billion in assets at DLIBJ Asset Management Co. in Tokyo. ``If the flow of money is cut off to the emerging markets, that's going to slow down those economies, which is why companies dependent on those countries are taking a hit today
Tracking the Dow Movement on Tuesday 16/10/07
The bears continue their second day of stampede which normaly slow down on the 2nd trading day.The last minute closing near or at the Moving Average from the bottom is a good sign of a positive early recovery.The bad news by the Fed's chairman has been carefully doctored on the mid-point of the month (the Pivot Day),that's where the Nikkei Futures is at expiry as well as the Dow Futures expiring 18/10/07.This has been an ever going process agenda so the well informed big-boys who have noted in their diary are the main benefacto.The man in the street will have to be culled at the slaughter house.
The long lower shadow of the bears,the tail has been fully utilised on Tuesday.What a good set-up by the market makers.Such a fear threatening device.So the lower shadow on Tuesday is very short hence further pullback will be limited.It's time for technical rebound and short covering to gear up for the new Dow futures trading month.Noticed the closing on Tuesday is just a few points from the tail end.Healthy sign.