The Hindu Business Line : Govt dumps capital market stabilisation fund proposal

AMIDST the all-round euphoria generated by the Sensex once again flirting with the 6000-point mark, the Ministry of Finance has quietly buried a capital market-related proposal that was born during one of the darkest periods of the Indian stock market.

The Ministry has officially laid to rest the proposal for setting up a fund through which it could intervene in the stock market during turbulent phases like the Black Monday crash on May 17, 2004, when the United Progressive Alliance (UPA) Government was being put in the saddle.

The ushering in of the UPA Government had witnessed some of the heaviest selling in recent years with the Sensex crashing by as much as 842 points during the day, requiring the Securities and Exchange Board of India (SEBI) to halt trading twice as the index hit two successive circuit filter at the lower end.

The proposed fund, loosely termed as the market stabilisation fund, was mooted by a section of leading stockbrokers. The brokers had suggested that the Ministry of Finance should look into the possibility of setting up a corpus that could be utilised to support the market in the event of heavy sell-offs as had happened on that fateful Monday.

"We are not in favour of setting up the fund. We feel it is a bad idea," a senior official of the Finance Ministry told Business Line.

The official said that the Finance Minister, Mr P. Chidambaram, felt that it would be unwise to have a mechanism to artificially prop up the market, least of all by a fund that could be seen as a Government-sponsored one. "If markets have to really be free there should not be any artificial intervention," the official said.

Monday, May 17, had started off with a heavy bout of selling, the kinds not seen in several years. The selling continued through the day despite the regulator's intervention. However, at the end of the day's trading it settled 565 points lower from the previous day's close, recovering nearly 300 points from its lowest levels. SEBI is currently probing the crash and is expected to submit a report to the Government shortly.

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