(Guardian) - Indian shares went on a rollercoaster ride today - dropping 9% in early trading as investors were panicked by the announcement of government curbs on the flood of foreign money entering the world's second-fastest growing major economy.
Share trading in India's benchmark Mumbai Stock Exchange Sensitive Index - or Sensex - was suspended for an hour after the markets opened. It had fallen more than 1,500 points in minutes. The rupee also crashed in value against the dollar.
10.30am
Indian shares went on a rollercoaster ride today - dropping 9% in early trading as investors were panicked by the announcement of government curbs on the flood of foreign money entering the world's second-fastest growing major economy.
Share trading in India's benchmark Mumbai Stock Exchange Sensitive Index - or Sensex - was suspended for an hour after the markets opened. It had fallen more than 1,500 points in minutes. The rupee also crashed in value against the dollar.
Foreign investors have pumped $4.6bn (?2.3bn) into the Indian market this month alone, taking the 2007 total so far to a net $17.6bn, far above a record $10.7bn in the whole of 2005. The flows had pushed the rupee up 12.5% against the dollar, which has bitten into the bottom lines of many corporates .
The Securities and Exchange Board of India announced tightened up trading in participatory notes, used by foreign institutions as an indirect route to invest in the market. About $10bn of foreign investment has been made through these notes.
Palaniappan Chidambaram, India's finance minister, said the new rules were aimed at moderating capital inflows that fueled a "very steep rise" in stocks. Mr Chidambaram said there was no intention of banning investment through participatory notes.
The finance minister also attacked "alarmist" comments by analysts who had claimed the intervention was heavy-handed.
"I was surprised to see one or two alarmist statements on television ... I think these statements are unfortunate. There is no need or place to make alarmist comments."
Mr Chidambaram's words had the intended effect - by 2.30pm Indian time today the Sensex's loss was just 338 points on the previous day's close.
The Sensex , which is made up of the country's 30 biggest companies, hit a record high of 19,174 on Tuesday, its 18th record in 19 sessions, forcing the government's hand. Ministers told the Guardian earlier this week that there were concerns over "hot money flows from hedge funds into India".
The rupee has also been caught up in the turbulence. The central bank bought almost $40bn since the beginning of the year to curb gains in the rupee that have reduced earnings for many exporters, especially in the hi-tech sector.