Sarma also sought to know if an outsider, particularly a a large investor in the stock market, provided unsolicited advice to the prime minister.
Sebi said investments offering high returns usually involve high risk, including fraud risk, and there can be no guarantees of assured returns in the securities market. (Wikimedia Commons)
Former IAS officer EAS Sarma on Thursday, 6 June, demanded an Enforcement Directorate inquiry into the 4 June stock market crash in which ₹31 lakh crore of investors’ wealth was wiped out.
The markets crashed as the counting of the Lok Sabha votes began on Tuesday.
In a letter to Economic Affairs Secretary Ajay Seth, Sarma wanted to know if regulator Sebi had taken any action to calm the market or initiated an investigation to ascertain the reason behind sharp fluctuations in stock market movement on 3 and 4 June.
“It is disturbing that a combination of factors triggered a stock market surge on June 3, 2024, followed by a huge crash during the day that followed, wiping out the hard-earned savings invested in the market by small and marginal investors, allowing bigger stock market sharks to profit at their cost. Even today, the stock market has not fully recovered,” said Sarma, who was a secretary in the Finance Ministry between 1999-2000.
Following the exit poll prediction of a resounding BJP victory, BSE benchmark Sensex shot up on Monday by 2,507 points or 3.4 percent to settle at a new closing peak of 76,469.
However, a day later, on Tuesday, the equity markets witnessed a bloodbath, with the Sensex tanking 4,390 points or 6 percent to settle at 72,079. This was the worst single-day fall in four years.
“It appears that the trigger for the unsavoury sequence of events came from no less than the Prime Minister himself when he “predicted” a stock market surge on the 4th, namely, the date of counting of votes in the 2024 elections, conveying a hint that investors should invest in the stock market, as his government’s return to power would usher in further so-called ‘reforms’.
“I am not sure what really prompted the PM to make such an ill-advised statement. His statement was followed by the Union Home Minister, who is reported to have added fuel to the fire by saying that investors should buy before 4th June,” Sarma said in the letter.
Terming the prime minister’s statement “imprudent”, the former bureaucrat said that it prompted small investors to blindly invest whatever little they had, thinking that they were privy to some inside information.
“The huge losses that followed have certainly eroded the credibility of the stock market,” he said. He sought to know whether some “expert” in the Ministry of Finance provided inputs to the PMO and if so, on what basis.
He also wanted to know if an outsider, especially a large investor in the stock market, provided unsolicited advice to the prime minister.
“Where did the investor or investors who earned profits park their ill-gotten money? Is there a link to a money-laundering exercise? The Enforcement Directorate, if it can function independently, as it should, may be asked to investigate this possibility,” Sarma said in the letter.
He asked to know the role played by the Sebi. “Could Sebi have calmed down the market by countering false statements? Has Sebi taken up an investigation?”
He said the Department of Economic Affairs cannot afford to remain passive and allow the culprits to go scot-free.
“It should ask the ED, CBI and CBDT to conduct a well-coordinated investigation in a time-bound manner so that the incoming new government, the newly elected Parliament and, of course, the public at large, would have to be apprised of this,” Sarma said.
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