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P. Chidambaram advised retail investors to exercise extreme caution.
With the stock markets galloping to new high on Wednesday and the Bombay Stock Exchange’s Sensex the 30-share benchmark index close to touching the 18000 mark from 17000 in a matter of days, Finance Minister P.Chidambaram advised retail investors to exercise extreme caution.
As a matter of advance warning to small and retail investors, Mr. Chidambaram said: “I do not think retail investors are entering the market at this level. I would advise them caution.”
With the U.S. Federal Reserve cutting interest rates by 50 basis points to tackle fears of an economic slowdown, the foreign institutional investors (FIIs) are finding the Indian bourses an finding the Indian bourses an attractive destination. This is evident from the fact that the net FII investments in the country’s stock markets in September added up to Rs. 19,625.30 core.
MSS bonds
In such a scenario, Mr. Chidambram pointed out that in case the Reserve Bank of India approached the Center for ways of tacking the situation, it would review the ceiling on the Market Stabilisation Scheme (MSS) bonds. The issuance of MSS bonds is one of the mechanisms to suck out liquidity which flows into the market on account of RBI intervention in the foreign exchange market to stem the appreciation of the foreign exchange market to stem the appreciation of the rupee.
The current ceiling on MSS bonds in Rs. 1,50,000 crore annually, out of which the Government has already sucked out excess liquidity to the extent of Rs. 1,42,000 core so far this fiscal.