Indian shares plunge 9.15 percent on offshore buying restrictions

MUMBAI, Oct 17, 2007 (AFP) – Indian share prices plunged more than nine percent Wednesday, forcing a trading halt, after the market watchdog proposed restrictions on purchases by overseas investors, dealers said. They said the plunge followed a notice by the Securities and Exchange Board of India saying it would consider curbs on the use of participatory notes that allow overseas investors to buy shares through a bank anonymously.

Trading lasted just minutes before the halt.

The Mumbai stock exchange Sensex index was down 1,743.96 points, or 9.15 percent, to 17,307.90 after hitting a record high above 19,000 on Monday.

“The market has reacted nervously to a proposed regulatory move. This is the first step towards tighter norms for overseas funds, which is healthy,” said Shitin Desai, executive vice chairman of DSP Merill Lynch.

India also allows foreign institutional investors to buy shares directly.

Dealers said the move was an attempt to stem a surge of overseas investment into the market that pushed the Sensex up by more than 3,000 points in less than a month and pushed the rupee to a near decade high against the dollar.

Overseas funds surged into the market after the US Federal