Business Round-up

Sensex disaster hits investors, senior citizens in shock

WHAT IS INDIA

May 18, 2004

Fear gripped the markets and the sensex nose-dived to an all-time low. Mutual fund investors rushed to recover their share capital. The crash adversely affected senior citizens who have put their money in stocks.

Manmohan Singh tried to reassure investors by announcing that the Congress government would not drastically change the previous government’s policies on privatisation. The Reserve Bank sought to comfort investors by forming a task force to monitor financial markets.

The sensex plunged to an all-time low of 11 per cent on Monday. This is the largest single-day loss since 1992, when the Harshad Mehta stock market scandal ripped the markets. Monday’s “bloodbath” cost the market Rs 1,24,000 crore. Brokers and dealers in Mumbai turned violent, blaming the Left, Sonia Gandhi, Sebi and the media for the crisis.

Mutual funds investors are under severe pressure to make amends for today’s losses. If they don’t earn what they have set for themselves as a daily target, they will have to sell more stocks, which could mean that unit holders lose in the medium to long term.

Manmohan Singh said fear of policy reversals was not called for. He said agriculture, education, health, food and social security would be priority areas, and his government would bring in reforms that would enable growth.

The Reserve Bank offered monetary support to help banks and major stock exchanges meet their payment obligations. It also assured foreign institutional investors that they could reduce their holdings easily at the prevailing foreign exchange rates.

The crash has adversely impacted older citizens who, unhappy about low interest rates in banks, have invested in stocks. Market observers said political leaders should talk carefully, and recommended stocks in textiles, pharmacy, cement and IT, industries that usually survive political upheavals.

Overall:

Sensex crashed: Many observers called it a ‘massacre’.

Mutual funds faced pressure: They have to sell cheap to keep their daily earning targets, but that could affect unit holders in the medium and long run.

Manhoman reassured investors: He said privatisation would continue and manipulators would be punished.

RBI formed task force: It will monitor markets to make sure there is no hanky-panky.

Investors were shocked: Older citizens, who thought stocks yielded better than bank deposits, were stunned.

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