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June 19, 1998


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Payment crisis, not sanctions, hit Sensex, say brokers

Syed Firdaus Ashraf in Bombay

The Sensex was lying so low in anticipation of the impending sanctions that when they finally came, they hardly affected the country's premier indicator of the market's state. But other factors combined to push the Sensex down by nearly 150 points. The rupee remained nearly unaffected.

Speaking to Rediff On The NeT, U R Bhatt, Director and Chief Investment Officer said, "The bearish sentiment in the market was more due to the payment crisis which has gripped the market. All of us were expecting the payment crisis would be resolved. But that did not happen and so the markets turned bearish."

He was referring to the fact that the market was expecting the brokers who had allegedly defaulted payments on certain scrips favoured by big stock operator Harshad Mehta would be able to pay their dues today.

"You have to accept that lose money when they are not paid their dues. So, it is obvious that they won't trade until they are paid. Sanctions did not come in the picture for them," said Bhatt.

Further, commenting on sanctions, he said, "Everybody was expecting the sanctions. So this isn't a surprise for the markets. The day Indian tested the nukes, everybody knew sanctions would follow. So I don't think sanctions are the main reason for the Sensex tumbling."

Another broker from a leading financial institution felt that the market is reaching a realistic level after the Securities Exchange Board of India announced its decision to ban short-selling.

"The Sensex is touching this level after it zoomed up by 200 points after the ban on short-selling," he said.

Foreign exchange dealers too felt that the sanctions would not affect the rupee because there was nothing new that had come into effect.

One of them, Pradeep Sharma of Thomas Cook, said, "Finance Secretary Montek Singh Ahluwalia and Commerce Minister Ramakrishna Hegde had announced that the rupee would not be weakened. So, there was a strong sentiment in the market for the rupee."

However, he added that whenever there was a fall in the rupee it was because of the nervous sentiment since the day sanctions were announced. The rupee did not have weak fundamentals, he said.

He also pointed out that the State Bank of India was a passive buyer today and, therefore, the rupee lost by only 30 paise against the dollar.

Meanwhile, Finance Minister Yashwant Sinha also assured that the sanctions would not affect the economy.

"The forex market acts on expectations and nervous sentiments. And today sanctions were expected. So there was no nervous sentiment for the rupee. That is why it did not lose ground against the dollar," says Ravi Vasant Raj, Vice-President, Mecklai Financial Consultancy.

Another forex dealer, Sandeep Sarkar, ANZ Grindlays Bank felt the forex markets had remained stable because the sanctions were not as hard as expected.

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