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When will mayhem end, think investors

Where is the Indian equity market headed and when will the current mayhem end? This is the
question an estimated 20 million investors in the country were asking on Sunday as they nervously
hoped for solutions to tackle the global financial meltdown that has pulled Indian equities down
over 16 percent last week and tripped industrial growth to its lowest in a decade.

"I sincerely hope the government is able to address the concern fast," said V Srinivasan, who
retired from a private sector company in Chennai, lost money in the recent market crash, but
declines to quantify the amount.
"Those who have entered the market at the 14,000-mark and above will find it difficult to recover
from their losses for next one year," he added.

As the financial tsunami continued over the week, the 30-share benchmark sensitive index of the
Bombay Stock Exchange (BSE), the Sensex, finished the week's trading Friday at 10,527.85 points,
down 1,998.47 points or 15.95 per cent from its close the previous Friday at 12,526.32 points.
Credit rating agency Crisil estimates Indian stockholders have seen investment of over Rs 2.3
trillion being wiped off in September, while another estimate has the top 10 Indian companies by
market capitalisation losing Rs 1.23 trillion in the last week alone.
People in India are beginning to realise that the financial upheaval globally will not pass the
country by, says Jagannadham Thunuguntla, head of the capital markets arm of India's fourth
largest share brokerage firm, the Delhi-based SMC Group.
"Detroit's Big-three (General Motors or GM, Chrysler, Ford) are in trouble. Reports say GM and Ford
are heading for bankruptcy, and GM and Chrysler are talking merger. The auto sector drives the
economy, companies like these and Citigroup, if they are in trouble, it spells trouble for us," he
added.
Reflecting on the mayhem, a pensive Srinivasan said: "Some people are losing their life
investments".
Added R Raghunathan, a Chennai-based retired employee: "Value erosion in my portfolio is around
Rs 200,000, 50 per cent of the total investment."
"I had invested the money my wife brought when she took voluntary retirement from an insurance
company. The stocks in which I have invested in are NTPC, Power Grid, Reliance Power, Ranbaxy
and JP Associates. All these scrips are now down," said Raghunathan, who took up a stock-broking
job for some time after retirement.
According to a senior finance ministry official who requested anonymity, the government will
likely propose fiscal measures to tide over the current turmoil in the financial markets.
"There is a suggestion to cut the CRR (the cash reserve ratio or the minimum balance against
deposits a bank has to keep as cash) by another 50 basis points to seven percent. It will moderate
the call money rate, which is otherwise so volatile," the official told IANS.
The call money rate - rate banks pay for borrowing from each other overnight to meet temporary
shortages of funds - soared to 24 per cent on Friday; this was around five-seven per cent lately.
"The repo rate reduction is another key line of defence, which we have not yet used," a senior
functionary in the Reserve Bank of India (RBI) said over phone from Mumbai, while confirming that
a further CRR cut was also being debated.
These are some indications that seem to have enthused Chennai's Raghunathan, who said: "I am
not bothered as the prices are likely to go up in five years," he said.
Yet, others are worried. "The market situation is erratic, there is a continuous chaos going on in
the money market," said Bijay Murmuria, Director Sumedha Fiscal Services and President of
Association of National Exchanges Members of India (ANMI) told IANS.
"The situation is such that people are afraid of investing. Anything can happen. Even if they have
liquidity they will put the amount in banks for fixed deposits, from where they can get fixed
interest rates rather than investing in the stock market," the Kolkata-based stockbroker added.
For good reasons too, it seems. Says Amitabh Chakraborty, president of Equities Religare: "The
Sensex is headed towards the 9,000-point mark. It will be maybe two years before there is an
upswing. Investors should foreclose debt like housing loans, avoid real estate and capital goods
stock, and invest in FMCG scrips and gold."
'Govt for more policy changes to encourage capital inflows'
After easing external commercial borrowing norms, the government is preparing to unleash more
measures to encourage capital inflows to en
sure that liquidity crisis do not hit the Indian financial systems, says a top finance ministry
official.
"We have already done something in ECB. It is possible to do more as we go along. We will take
more policy change to allow more capital inflows," Department of Economic Affairs Secretary
Ashok Chawla said in an interview.
Asked about the effects of ongoing global financial crisis on India, he said, "India is not entirely
shielded from the effects of what is happening in developed countries. The impact so far as India
is concerned is indirect.
"Our banks and financial institutions are not hit by what is happening in these countries. What is
impacting us is that capital from these countries will see a dip because they have to handle their
own funds," he said.
In a bid to encourage flow of fund, the government last month increased the overseas borrowing
limit to $500 million for infrastructure companies.
At the same time, it widened the ECB window by including mining and petroleum into
infrastructure sector.
Pinning hopes on action plan finalised by G-7, Chawla said from the crisp, aggressive, five-point
action plan finalised here, markets will take it as a sign of serious endeavour on part of the
developed countries to proceed with setting their house in order.
"This will send a positive signal and markets next week should open on a calm note," he said.
The five-point plan includes decisive action and use of all available tools, take all necessary steps
to unfreeze credit and money markets kickstart secondary mortgage markets.
Commenting on RBI actions, Chawla said, "We are in touch with them (RBI). As the situation
unfolds and more needs to be done, there are other instruments also that the RBI can use to
ensure liquidity does not dry up, businesses do not suffer and institutions get the kind of support
they need."
If the situation continues, particularly in relation to liquid markets and credit markets, more steps
will be taken as and when necessary, he said.
"Inflows will be encouraged as much as we can and we will provide necessary windows to see
whatever can come in," he said, adding, the situation is difficult.
Asked about Finance Minister P Chidambaram cancelling IMF trip, he said, FM wanted to be in
India to ensure that steps required to be taken by various agencies are taken in time and to ensure
that calm and peace established in stock markets and other markets.
RBI may delay further liberalisation policy for foreign banks
The global financial crisis may force the Reserve Bank to delay the roadmap for further liberalising
the banking sector by six to eight months from the scheduled date of April, 2009, a finance
ministry official said.
"Opening of the banking sector to foreign players could be delayed by 6-8 months due to present
uncertain global times," the official on the condition of anonymity said.
The RBI is slated to review its policy on the foreign banks in April, 2009, which now could be
delayed.
RBI had earlier stated, "The second phase will commence in April 2009 after a review of the
experience gained and after due consultation with all the stakeholders in the banking sector.
The review would examine issues concerning extension of national treatment to wholly-owned
subsidiary, dilution of stake and permitting mergers/acquisitions of any private sector banks in
India by a foreign bank in the second phase, RBI had said.
As per the World Trade Organisation agreement, India has committed 12 branches of foreign banks
in a year.
However, RBI has been more liberal than the commitments. Between 2003 to October 2007, the
central bank gave approval to about 75 new foreign bank branches.
Sources said foreign banks should be ready to open branches in Tier II cities. "Unless they are
ready to go to Tier II cities, it is difficult to provide licence," the sources said.
The first phase of liberalisation which started in March 2005 permitted the foreign banks to
establish presence by way of setting up a wholly-owned banking subsidiary or conversion of the
existing branches into a subsidiary.
To facilitate this, RBI also issued detailed guidelines. The guidelines covered the eligibility criteria
of the applicant foreign banks such as ownership pattern, financial soundness, supervisory rating
and the international ranking.