Chidambaram: Balancing act

New Delhi, May 22: Finance minister P. Chidambaram and his team today slipped into damage control mode to try talk up the falling market.

“My message to retail investors is to stay invested. FIIs are here to stay. There is no reason to panic... Banks will give money to those who want to provide margin calls,” Chidambaram said soon after the market crashed over 1000 points and trading came to a halt.

Sources said senior finance ministry officials, who were in constant touch with Sebi, the bourses and the Reserve Bank also gave informal advice to state-run financial institutions to indulge in bottom fishing, that is to buy blue-chip shares at low prices.

Chidambaram tried to explain today morning's fall by saying, “My information is that brokers operating on proprietary accounts were under margin pressure, so they were selling. The system is in place and whatever has to be done has been done.”

“Mutual funds are buying and even FIIs have bought today. I have spoken to the RBI, there is ample liquidity. Banks have been asked to provide liquidity,” the minister said.

But accusations that it was the finance ministry and market regulator Sebi that were to be blamed for the market free fall continued.

“We have always said the sensex rise was an artificial bubble. The crash only proves what we have been saying,” CPM leader Rupchand Pal said.

Pal said the government's circular which hinted that it would tax stock traders at higher rates and then its clarification that this would not impact FIIs was a result of “pressurising” by US-based fund managers.

Even Trinamool leader Mamata Banerjee demanded a discussion on the stock market in the lower house, something which is likely tomorrow.

North Block, of course, predictably defended itself, with economic affairs secretary Ashok Jha stating the CBDT circular's impact on the market was doubtful.

The controversial circular was put out by the Central Board of Direct Taxes on Wednesday asking for comments to help distinguish between a stock trader and an investor, so that it could better tax them. It was seen by many as aimed at FIIs but was later clarified as routine and not aimed at any FII player.

“It appears that some brokers trading on the proprietary account may have come under margin pressure and, therefore, may have sold,” Jha said at a press conference called just before trading ended for the day today.