Indian commuters walk past the Bombay Stock Exchange in Mumbai.
© AFP/File Sebastian D'Souza

MUMBAI (AFP) - In early Monday trade, the the Mumbai stock exchange 30-share Sensex index fell an intraday record 1,111.71 points to 9,826.9 before trading was halted.

The rival National exchange's 50-share index, known as the Nifty, fell 289.6 points or 10 percent to 2,896.45 and trading was also stopped.

As trading resumed around 0730 GMT, the Sensex recovered to show a loss of 491.51 points or 4.49 percent at 10,447.10 while the Nifty was down 148.50 points or 4.57 percent at 3,098.40.

"We appear to be gaining some normalcy and it appears that some large-cap stocks would be good buys at these levels," said Andrew Holland, executive vice president research with DSP Merrill Lynch.

The last time trading was halted on the exchanges was on May 17, 2004, after the markets plunged in reaction to a general election which brought the Congress party to power with communist allies.

The sharp fall raised some concern that investors who borrowed to buy shares, or bought stocks via futures contracts, in the past few months may have trouble making due payments.

Banks and brokerages allow small investors to buy shares on credit and are now expected to call in the loans. Investors often only pay a fraction of the price due when buying a futures contract.

As the market falls, the pressure on investors to make good their position increases and can become a vicious circle as investors try to limit their losses.

However, the market regulator, the Securities and Exchange Board of India, sought to assure investors not to panic.

"There are no reasons to worry. There is no liquidity problem," securities chief M. Damodaran told reporters in Mumbai.

Finance Minister P. Chidambaram also intervened, telling reporters there was "no problem with liquidity. I have spoken to the Reserve Bank of India today."

A fatigued Indian stock dealer in Mumbai rubs her eyes.
© AFP/File Sebastian D'Souza

He added that economic "fundamentals are strong" and "my advice for retail investors is to stay invested. Mutual funds are buying. (Foreign funds) have invested for the long-term. There is no reason for any panic."

The share market has been a highlight of India's economic success story as the economy grows quickly and small investors and foreign and domestic funds poured money into Indian equities in the past year.

In 2005, overseas funds invested 10.7 billion dollars and the latest data showed the trend continued into the first half of 2006 at 4.3 billion dollars as of last week.

Domestic mutual funds also invested heavily -- 15 billion rupees (333 million dollars) in the past two months -- as retail investors joined the rally which saw the Sensex gain more that 30 percent since the start of the year to early May.

The market however has now fallen sharply for six consecutive trading session as concerns of a global economic slowdown and inflation have made investors nervous.

"There are not enough people at the moment with the capacity to bring in more money; investors should wait until the expiry of the May futures contract," said R. Balakrishnan, directors of Parallex Consultancy Services.

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