India trading resumes after halt

MUMBAI, India (AP) – Trading on India’s stock exchanges was halted for one hour after the benchmark index plunged nearly 8 percent early Wednesday, a day after the market regulator moved to curb buying by foreign funds.

A man watches the digital display screen outside the Bombay Stock Exchange in Mumbai, India, Wednesday.

The Bombay Stock Exchange’s 30-share Sensex tumbled 1,508 points, or 7.9 percent, to 17,544 points, triggering an automatic suspension of trading. On the broader National Stock Exchange, the 50-company S&P Nifty index plunged 524 points, or 9.3 percent, to 5,143 points.

Share prices bounced back modestly when trading resumed. The Sensex crept back to 17,994 points, still down 5.5 percent from Tuesday’s close. The Nifty index was trading 5.7 percent lower.

The drop came as investors reacted to a proposal by the Securities and Exchange Board of India late Tuesday to change policies on the issue of participatory notes to foreign investors. Participatory notes are instruments that allow foreign funds not registered with the market regulator to invest in Indian shares.

The SEBI’s proposal may be aimed at countering a surge in foreign money that has caused Indian share prices to rise sharply in recent weeks and has worried policy makers about a potential fallout on the broader economy.

As of Tuesday, the Sensex had risen 23 percent from a month ago. The rally has been fueled by demand from foreign funds, which have increasingly flocked to India to seize opportunities in its fast growing economy.

To date this year, foreign institutional investors have bought about $16.4 billion in Indian stocks, including $7.2 billion that came in after the U.S. Federal Reserve cut its key interest rate on September 18.

Analysts said the market could go down further as the SEBI’s move would likely leave less money chasing stocks in the market.

“The liquidity tap has been shut off, the very source of money has been shut,” said Jayant Pai, assistant vice president for institutional equity sales at investment company IL&FS Ltd.

“It’s a knee jerk reaction, people have panicked. It could go down further because people are still sitting on good profit and the tendency will be to take profits and move out,” said Pai.

Power utility Reliance Energy Ltd. was the major loser, down 16 percent at 1,600 rupees.

Index heavyweight Oil and Natural Gas Corp. dropped 10.7 percent to 1,050 rupees and construction firm Larsen & Toubro Ltd. lost 8.8 percent to 3,051 rupees.