The finance ministry and Sebi should have fore-warned of Wednesday?s market crash, as the regulator abruptly announced the previous night a proposal to restrict the issuance of participatory notes (PNs) in the derivatives market. The market crash has hit retail investors badly, according to Investors? Grievances Forum (IGF) president Kirit Somaiya.
Somaiya told reporters that the PNs and the price rigging by some of the domestic market players are behind the market manipulation. ?The market rise of 4,000 points in the last three months has been due to the fund flow from PNs through FIIs,? he said.
He said Sebi?s proposal on PNs has led to the 1,700 points market crash within five minutes after the market opened.. ?The FII investment through PNs was Rs 31,875 crore as on March 14, 2004 which has gone up to Rs 3.5 lakh crore as on August, 2007. This is 51.6% of the total FII investment in the domestic market,? he said.
He said a majority of the fund flow through PNs is coming from the dubious quarters. ?The Intelligence Bureau has also warned government several times in the recent past stating that mafia money is flowing in the equity market,? he added.
He said the government should also probe who has been involved in the short-selling in today?s crash. ?The clarification from Sebi and finance ministry always comes after the crash. They should warn this kind of situation before hand.?