Sensex down 550 points as China crash, P-Note worries hammer market

The Bombay Stock Exchange sensitive index Sensex closed 550 points lower at 27,561 points and the National Stock Exchange (NSE) index Nifty fell 160 points to 8,361 in choppy trading amidst concerns that a tumble in China and jitters over stiff controls on participatory notes (P-Note).

Finance minister Arun Jaitley sought to calm investors after the Sensex fell as much as 582 points in the course of trading on Monday.

The initial shock came from a steep 8 per cent plunge in China markets -  their biggest one-day drop in eight years - amid renewed fears on the outlook for the world's No 2 economy.

The slide comes after a period of relative calm after China quelled market volatility through a slew of support measures to arrest a slump that began in mid-June.

Jaitley sought to calm markets saying, "the government will not take any steps that will adversely impact the country's investment climate."

He said the government would consult Sebi, the Reserve Bank of India and other stakeholders before deciding on the issue.

P-Notes are popular with foreign investors because they are able to save time and the costs associated with direct registration with Indian authorities.

The Special Investigation Team (SIT) appointed by the Supreme Court to probe channels of black money has identified P-Notes and circular trading of shares among others as fountains of black money.

Meanwhile, several global banks have already tightened their KYC norms, so that bulk of P-notes, specially coming through issuance done through global investors, will be subjected to increased scrutiny.

Participatory notes accounted for a whopping Rs2,75,000 crore (about $43 billion) investments in India's secondary markets at the end of June.

Although the share of P-Notes has fallen to 11.5 per cent of the total foreign institutional investment (FII) since the tightening of Sebi norms, their share has since been steadily growing.