Indian stocks recover after plunge halts trade

Indian share prices recovered from a 10 percent plunge on Monday that halted trading for an hour to close down 4.18 percent as domestic funds helped prop the market, dealers said.
They said that statements by the central bank, the finance ministry and market regulator that any payment problems linked to the plunge would be handled by asking commercial banks, helped restore confidence.
The benchmark 30-share Mumbai stock exchange index closed down 456.84 points to 10,481.77 after it fell an intraday record 1,111.71 points to 9,826.9 before trading was halted for an hour in early market action. Monday's trade continued a fall that saw the Sensex lose 12.3 percent in the previous six trading sessions, which prompted some investors to think it was a good time to buy.
"Some of the funds were seen bottom fishing after the market re-opened. We still are concerned about the liquidity position relating to futures contracts over the next two days," said Naresh Garg, chief investment officer at Sahara Mutual Fund referring to the end of the May futures contract.
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 payments.
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." 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 Reserve Bank of India (RBI), the country's central bank, said it would ensure that commercial banks have enough funds to meet any large payment demands via banks or brokerages.
"In light of the developments in the stock exchanges, the RBI has been in touch with major settlement banks and both the major stock exchanges to ensure that the payment obligations on the exchanges are met smoothly," the RBI said in a statement.