in New Delhi
The Bombay Stock Exchange closed for trading yesterday as regulators tried to forestall a payments crisis that may trigger heavy losses among 50 leading Indian brokers and investors.
Financial authorities are also investigating allegations that one of the exchange's senior brokers, RJ Jhaveri, tried to rig a jump in shares prices for an Indian company, MS Shoes, several days ago before it launched a £95m public issue. Instead of climbing, prices in the shoe company fell, and the broker now faces losses of over £3.5m which he cannot pay, according to Indian newspapers.
"It's a chain reaction affecting everyone in the market," said one Bombay broker, adding that around 50 of his colleagues must pay off their losses to the exchange clearing house. The MS Shoes public issue, which was badly undersubscribed, may now be cancelled.
Indian brokers, described by one financial newspaper as being "in a militant mood", are so far refusing the Exchange Authority's ultimatum that they cover their losses. Some financial said the market might remain shut until mid-week. Although Bombay has attracted many foreign investors over the past year, financial experts said that the latest crisis revealed severe flaws in the exchange's ability to regulate its brokers. Even before the MS Shoes scandal broke, two other brokers had reportedly defaulted because their clients refused to pay up, and another 12 brokers have been told by authorities to stop trading because of heavy losses. The Bombay exchange was still reeling from a 1992 £400m stock and securities swindle that dragged in several foreign banks.
Bombay share prices fell sharply last week before the latest round of defaults was exposedfollowing the victory of a rightwing Hindu party in the state assembly elections.
In London, a spokeswoman for Save and Prosper, one of Britain's leading investment houses, said it was "very comfortable" that 8.5 per cent of its emerging markets fund's portfolio was in India. She said S & P was "guardedly optimistic" because of the rapid growth of the Indian markets and had "not been affected in any way" by the recent high-profile travails of the Bombay stock exchange.