We are investigating eight brokerage firms in Bombay to check whether there was any excessive speculation or manipulation of stock prices.

Sebi chairman DR Mehta

Last week's budget - hailed by the markets and industrialists alike - had propelled the Bombay Stock Exchange (BSE) sensitive index to a high of 4,387 points last Thursday.

But three trading sessions later, the BSE index slumped below the 4,000 mark following sustained selling by stock market operators and financial institutions.

The wild fluctuations confounded Indian officials who only last week were congratulating themselves on the positive response the budget got from the markets.

The Securities and Exchange Board of India (Sebi), overseeing the Indian capital markets, has now stepped in to probe the crash on domestic markets followings allegations that heavy short selling by a bear cartel is behind the big meltdown.

Market players often go short or long on the markets depending on their immediate outlook on market trends.

Foreign brokerages

"We are investigating eight brokerage firms in Bombay to check whether there was any excessive speculation or manipulation of stock prices on Friday when the Indian markets lost nearly 4.5%," said DR Mehta, chairman of Sebi, on Monday.

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Amongst those being investigated are foreign institutional brokerage firms like Morgan Stanley, Credit Suisse First Boston, First Global and some big Indian brokers like Radhakishan Damani and Nirmal Bang.

Nearly all these firms and brokerage houses have denied that they sold heavily in Indian stocks, particularly technology counters, as part of "any bear cartel" and have insisted that they were only executing regular business as per the "requirements of their clients".

According to analysts, the stock markets are unlikely to stabilise in the immediate future because of the Sebi probe into stock price movements.

"Stock prices should be governed by market forces alone. Any move to artificially prop up or depress prices by government intervention will only backfire," according to Jignesh Shah, a Bombay-based sub-broker and investment consultant.