Volatility due to selling by brokers: FM

New Delhi: Pointing out that Foreign Institutional Investors and Mutual Funds are net buyers since Monday morning, the Finance Ministry attributed the volatility in capital market to possible selling by some brokers trading on the proprietary accounts due to margin pressure.

"It appears that some brokers trading on the proprietary account may have come under margin pressure and, therefore, may have sold," said, Economic Affairs Secretary Ashok Jha.

He said Reserve Bank of India has made it clear that bank has been advised to provide ample liquidity to those who may require money to meet margin requirements.

"Banks are doing so. That position stands and will continue to be so," said Jha.

He added that the effect of speculative report about the CDBT draft circular on the volatility in capital market is doubtful.

He said the draft circular made no reference to FIIs, who are governed by separate provisions of the Income Tax Act and the relevant Double Taxation Avoidance Agreement.

Pointing out that the Sensex closed at 12,217 points on May 17, he said there has been volatility in the market since then.

The volatility can be attributed to a variety of factors including the decline in global markets, fall in metal prices, the hardening of interest rates and the comparative effectiveness of other emerging stock markets.

"We wish to emphasize the sound fundamentals of the Indian economy," he said adding the GDP growth rate in 2005-06 is estimated at 8.1 per cent and the growth story is expected to continue this fiscal too.

To substantiate his argument he said the foreign reserves are at 163 billion dollars, inflation stands contained at four per cent and manufacturing growth is 9.1 per cent.

The economic affairs secretary said corporate profit also continued to be buoyant and the Indian growth story remains a vibrant growth story.

Jha mentioned Confederation of Indian Industries's business confidence index for April-September 2006 which stands at 69.3 points reflecting an increase of 2.1 points compared to the previous period.

He also referred to a Business Standard survey in which the CEOs of 58 companies gave 6.46 out of 10 marks for financial management.