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Market mayhem continues despite liquidity injection

Indian equities markets Friday were witnessing an unprecedented bloodbath following panic selling
on extreme nervousness despite announcement of a measure by the country's central bank to inject
as much as Rs.600 billion liquidity into the system.

Finance Minister P. Chidambaram reiterated Friday that the fundamentals of the Indian economy
were strong. He also announced formation of a high-level group to look into the liquidity
requirements following the mayhem in the capital market.

But two and a half hours after the opening bell, the 30-share benchmark sensitive index (Sensex) of
the Bombay Stock Exchange (BSE) was ruling at 10,411.69, down 916.67 or 8.09 from its previous
close Wednesday at 11,328.36 points.

The markets opened very weak and within minutes into trading, the Sensex had fallen by 1,088.6
points to 10.239.76 points, the single largest intra-day fall since Jan 22, 2008, when it had shed
1,111 points, analysts said.

Despite staging a minor recovery, the index again began to head downwards.

The broader-based 50-share S and amp;P CNX Nifty index of the National Stock Exchange (NSE)
also behaved similarly - opening very weak, recovering somewhat and then again heading

After two and a half hours of trading the Nifty was at 3,261.65, down 252 points or 7.17 percent from
its previous close Wednesday at 3,513.65 points.

The BSE midcap index was at 3,689.45, down 321.03 points or 8.00 percent from its previous close
Wednesday 4,010.48 points.

The BSE small cap index was at 4,390.76, down 308.43 points or 6.56 percent from its previous
close at 4,699.19.

All Sensex component stocks were in the red and bank, capital goods, consumer durables and
realty sectoral indices were the hardest hit.

'The CRR cut by the RBI is actually causing more worry because if instead of a one-off measure this
is the beginning of a regime of liberal policies in India then the repercussions will be even more
severe,' analyst Jagannadham Thunuguntla told IANS.

Thunguntla is the head of the capital markets arm of India's fourth largest share brokerage firm, the
Delhi-based SMC Group.

RBI or Reserve Bank of India is India's central bank.

It announced Friday a 150 basis point cut in the cash reserve ratio instead of 50 basis points that it
had announced Oct 6, 2008 to inject Rs.600 billion liquidity into the system instead of the Rs.200
billion corresponding to a 50 bps cut.
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'That India's banking system is still sound is only because the previous RBI Governor Y.V. Reddy
refused to adopt liberal policy measures throughout his entire tenure despite repeated requests to
do so in face of the bull market,' Thunuguntla said.

'It is now very clear that the liberal policies of US and European central banks leading to extreme
over-leveraging by banks and financial institutions is at the root of the present crisis.'

'It's a bad situation. Fundamentals don't work at such times. It's a cyclical chaos where more liquidity
in the market means inflation will go up and less liquidity means money market will be affected,'
Bijay Murmuria, Director of Kolkata-based Sumedha Fiscal Services and President of the
Association of National Exchanges Members of India (ANMI), told IANS.

Murmuria, however, described the 150 basis points cash reserve ratio cut by the RBI as a 'positive

'It's a nightmare, people are clueless where financial markets are heading,' said Murmuria.

'Investors are frightened due to the global economic turmoil and liquidity crunch, which led to this

'What is causing real panic is that investors across the world are no more responding positively to
the various steps being taken by governments, central banks and monetary authorities around the
world,' Thunuguntla told IANS.

'Investors are panicking and they have simply lost confidence,' Murmuria concurred.

( © IANS / India eNews)

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© Copyright 2008 All Rights Reserved.