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India: The ramifications of the stock market decline of 2000, including whether stockbrokers were victims of violence (2000-August 2004)

Two BBC articles reported on the economic slowdown in India in 2000 (20 Apr. 2000; 10 Oct. 2000). The 20 April 2000 BBC article reported that Bombay's Sensitive Index lost 500 points reducing it by 20 per cent to 4450 points. According to a stockbroker, the decline led to an important loss in investment for investors, forcing them to wait for markets to stabilize (BBC 20 Apr. 2000). The Bombay stock exchange index took another hit and fell below 4000 points in October 2000 due to combined economic losses related to industry, agriculture and global oil prices (BBC 10 Oct. 2000).

The following excerpt of the International Monetary Fund (IMF)'s Public Information Notice of 14 August 2001 provides information on some of the ramifications of the economic decline, including impacts on the stock market, in India in 2000:

[...] pressures on the capital account mounted during 2000. Market confidence and portfolio inflows were undermined by the global turnaround in sentiment toward IT stocks (which represented roughly a quarter of India's market capitalization), concern about the impact of higher oil prices on the balance of payments, and fears that the rupee had lost competitiveness with the dollar's strength against other currencies. The Reserve Bank of India (RBI) responded to the pressure on the rupee by intervening heavily in spot and forward markets and by tightening domestic monetary conditions, hiking the Bank rate in July. Administrative restrictions on access to foreign exchange were also imposed, including one that was deemed in contravention of Article VIII [of IMF's Articles of Agreement]. By end-October gross reserves had fallen by $3.2 billion to $34.9 billion (43/4 months of imports).

These pressures eased in late 2000 and into early 2001. The government's India Millennium Deposit (IMD) scheme-involving a five-year instrument marketed to nonresident Indians-yielded inflows of $5.5 billion in October and November 2000. The boost to reserves and the softening of world oil prices helped restore market confidence, and the cut in U.S. interest rates in early 2001 also helped strengthen the sentiment toward the rupee. In early 2001, the rupee/dollar rate had recovered some of its earlier losses, portfolio inflows had rebounded, and gross reserves reached $43 billion by early June (nearly 6 months of imports and four times short-term external debt).

With stronger exchange market conditions and signs of industrial weakening, monetary policy was eased. Money market conditions began to relax in late 2000, and bond yields fell sharply. The RBI subsequently moved to lower its Bank rate by 100 basis points in February/March, and reduced the commercial banks' cash reserve requirement by 50 basis points. Monetary policy was further eased in April and May, with two cuts of 25 basis points each of the RBI's repo rate, and a further 50 basis points reduction in the banks' cash reserve requirement.

However, financial market confidence remained fragile-although the stock market had recovered from the sharp losses suffered in early 2000, a stock market scandal, which involved accusations of insider trading and payment defaults by some brokers, and led to the closing of an urban cooperative bank, contributed to further declines and by end-April stock indices were roughly 40 percent off their early 2000 peak.

A credit analyst for Asian countries working in New York provided the following analysis of the economic decline of 2000 in 24 August 2004 correspondence:

Based on my memory of the events, the Indian stock market fell quite a lot in 2000. The S&P CNX 500 index, one of the measures of the market in India, fell 24% in 2000 after rising 98% in the previous year. This was the same time as the US stock exchange also declined. I believe there were a couple of stock market scandals then as well, which is typical in emerging market countries like India (and in the US as well).

The Indian economy decelerated that year and in general it was a sluggish year for the country. However, there was no recession or disaster by any means.

Regarding your second question [on whether brokers received threats or were victims of violence because of the decline], I am not aware of any such incidents. However, I would not get to know of them unless they were big enough to make it to the Indian English-language media or the foreign press. It would surprise me if brokers were threatened since most Indians have a low opinion of them, thanks to the periodic scandals that afflict the stock market and involve shady dealings by some brokers. I do not think that most Indian investors feel that they are dealing with the most honest group of people in the country when dealing with brokers. Knowing what they were getting into, it would surprise me if some investors threatened brokers after the market fell (though I do not rule out such instances).

Additional and/or corroborating information could not be found among the sources consulted by the Research Directorate within the time constraints.

This Response was prepared after researching publicly accessible information currently available to the Research Directorate within time constraints. This Response is not, and does not purport to be, conclusive as to the merit of any particular claim for refugee protection. Please find below the list of additional sources consulted in researching this Information Request.

References

BBC. 10 October 2000. Sanjeev Srivastava. "Slow Growth Forecast for India." <http://news.bbc.co.uk/1/hi/world/south_asia/965604.stm> [Accessed 26 Aug. 2004]
_____. 20 April 2000. Sanjeev Srivastava. "Panic as Bombay Market Plunges." <http://news.bbc.co.uk/1/hi/world/south_asia/720920.stm> [Accessed 26 Aug. 2004]

Credit analyst for Asian countries, New York. 24 August 2004. Correspondence.

International Monetary Fund (IMF). 14 August 2001. "IMF Concludes 2001 Article IV Consultation with India." <http://www.imf.org/external/np/sec/pn/2001/pn0188.htm> [Assessed 26 Aug. 2004]

Additional Sources Consulted

Internet sites, including: Amnesty International, BBC, Dawn, Dialog, The Economist, Human Rights Watch, The Tribune, US Department of State, World Bank.