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.

Bernanke: Housing Woes to Slow Growth

A deepening housing slump probably will be a "significant drag" on economic growth into next year and it will take time for Wall Street to fully recover from a painful credit crisis, Federal Reserve Chairman Ben Bernanke warned Monday.

Bernanke once again pledged to "act as needed" to help financial markets -- which have suffered through several months of turbulence -- function smoothly and to keep the economy and inflation on an even keel.

"Conditions in financial markets have shown some improvement since the worst of the storm in mid-August, but a full recovery of market functioning is likely to take time, and we may well see some setbacks," Bernanke said in a speech to the New York Economic Club.

The ultimate implications of the credit crunch on the broader economy, however, remain "uncertain," the Fed chief said.

Since that September meeting, the housing slump -- the worst in 16 years -- has gotten deeper, Bernanke said.
"The further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year," he said.

Bernanke said the Fed will continue to monitor inflation developments carefully. "Part of the reason that we have some confidence in inflation remaining well controlled is we expect to see the economy growing more slowly at the end of this year" and early next year.

The Fed's next move will be determined by what is best for the economy, Bernanke suggested. As he has said previously, it is not the Fed's job to shield investors from the consequences of bad financial decisions.
"Developments over the past few months reinforce this point. Those who made bad investment decisions lost money."
The worst carnage has affected investors in "subprime" mortgages -- those made to people with spotty credit or low incomes. Some lenders have been forced out of business and some investors in those and related mortgage-backed securities have taken a huge financial hit. Foreclosures and late payments have soared.

Weaker home prices seen during the housing bust have made it more difficult for some subprime borrowers to refinance out of loans that offered low "teaser" rates but jumped to much higher rates, resulting in payment shocks. Delinquencies on these mortgages are expected to rise further, Bernanke predicted.


Tracking the Dow Movement on Monday 15/10/07

Another jittering day on the credit-crunch issues sent the Dow sliding from the opening bell before it starts to stabilise after 11:15am.Intermittent accumulation were noticed and towards the last one-hour of trading an advancing soldiers were sighted and aiming for the MAV.A possible spill-over of bulls for the next day trading.


It's a Bearish Engulfing candlestick!It did not close below the Bottom average.There is a possibility of a short covering. http://www.litwick.com/indicators/1210.html