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India's stock market suffers big crash

India's stock market regulator halted trading Monday after shares tumbled in one of the biggest drops in years because of investor worries about the policies of the incoming communist-supported government.
/ Source: The Associated Press

India’s stock market took the biggest plunge in its 129-year history Monday, prompting a halt in trading as investors fretted over how communist parties would influence the policy of the incoming coalition government of Sonia Gandhi.

Prices partially bounced back later in the day.

Stock market regulators halted trading at the main bourses for an hour after share prices tumbled more than 10 percent within 20 minutes of the opening. Share prices plunged a further 5 percent when the market reopened, and the Securities and Exchange Board of India ordered trading suspended yet again for two hours.

The benchmark index of the Bombay Stock Exchange, the Sensex, tumbled to 4282.98 points, down 15.52 percent, before trading was suspended for the second time. The Nifty index of the National Stock Exchange, the country’s largest, which opened in 1994, plunged 17.47 percent.

Share prices began recovering Monday when markets resumed trading for the third time. News reports said state-run financial institutions were asked by the finance ministry to buy heavily into the market and reverse the fall.

Outgoing Finance Minister Jaswant Singh said he could do very little to intervene as he is just “a namesake finance minister.” Instead, he said stock market regulators and the central bank should keep a close watch on the situation.

By 4 a.m. EDT, the Sensex and Nifty bounced back, reversing nearly half the losses suffered in early trading.

Still, hundreds of small investors gathered around the Bombay Stock Exchange, blaming their losses on the new government and shouting slogans against the Congress party and its leftist allies.

“Down with Sonia Gandhi,” they shouted.

Manmohan Singh, a Congress party official who was the architect of India’s economic liberalization policies, scrambled to reassure the markets, saying the new government would be pro-investment.

“There is absolutely no need for panic in the financial markets,” he told reporters. “There will be stability and transparency in all policies.”

Singh said the new government would not hesitate to take action against people who “manipulate the market and create unnecessary panic.”

Brokers said volatility in the market would continue until the new government’s policies are made clear.

“Foreign funds are selling as they aren’t clear about what the new government is going to do on the economic reforms front,” said Sumeet Mehta, an analyst at Fortis Securities.

The market plunged on fears that the Congress party, set to form a new government after ousting Prime Minister Atal Bihari Vajpayee in April-May national elections, may slow privatization of state-run companies and undo market-friendly policies to appease the leftists, whose support is crucial for a parliamentary majority.

The Congress party said the market fears are misplaced.

“We will continue with the good work done by the previous government but wherever midcourse correction is required, we will do it.” Singh said. “Reforms are a must, but reforms must be seen as working for a great majority of people.”

Singh said the new government will pursue a “selective approach” on privatization. “Wherever privatization is in the national interest, it will be carried out,” he said.