Nightmare on Dalal Street

MUMBAI — It was another day of carnage on the bourses. A massive sell-off sent Nifty and Sensex tumbling 10 per cent by early afternoon trade causing stock exchanges to halt trading for one hour.

By From Our Correspondent

  • Follow us on
  • google-news
  • whatsapp
  • telegram

Published: Tue 23 May 2006, 11:09 AM

Last updated: Sat 4 Apr 2015, 3:46 PM

Market wide circuit filters are applied when Nifty or Sensex goes up or down by 10 per cent, 15 per cent and 20 per cent in a day.

The market recovered from lower level after the trading was resumed at 12:55 IST.

The intra-day rebound was attributed to buying by institutions like LIC on behalf of the government. Sensex ended the day with a loss of 456.84 points or 4.1 per cent to 10,481.77. When the trading was halted at 11:55 IST, Sensex was down 1,111.70 points or 10.16 per cent at 9,826.91.

The previous time the market wide circuit filters were applied was on May 17, 2004 when the market had tanked following the defeat of the market friendly BJP government in general elections.

The S&P CNX Nifty lost 165.55 points or 5.1 per cent to settle at 3,081.35. As per provisional data, Nifty May 2006 futures ended at 3,020, a steep discount of 61.35 points over the spot Nifty closing of 3,081.35. Nifty June 2006 futures ended at 2,999.80, a huge discount of 81.55 points over the spot Nifty closing of 3,081.35.

Margin calls were hit following a huge carnage on the bourses in the past two days when the Sensex had tumbled 1,279 points. Margin calls are triggered for leveraged positions and with respect to margin funding. If investors are unable to cough up additional margins, banks or brokers resort to selling of clients' positions.

Investors also cut positions to limit further losses on their portfolio after a sharp fall in share prices, dealers said. Market talks of mutual funds facing redemption pressure also added to the fall. Meanwhile, arbitragers indulging in cash-futures arbitrage cut positions in the market.

Weakness in Asian markets only added to the problems on the domestic bourses. US inflation worries continued to weigh on Asian markets. Key indices in Hong Kong, Japan, South Korea, Singapore and Taiwan were down by between 1.8 per cent to 3.1 per cent. Higher US rates make emerging market assets less alluring to risk averse investors.

The fall on the domestic bourses first began on May 18 when the Sensex plunged 826 points in a single trading session. The fall on that day was prompted by a tax circular saying new guidelines were being planned to tax investors and traders differently, sparking speculation that foreign portfolio investment will be taxed at a higher rate.

On Saturday, Finance Minister P. Chidambaram said the circular was not aimed at Foreign Institutional Investors (FIIs), seeking to reassure jittery markets. But the damage was already done on the bourses as margin calls were hit following the massive decline and it was a case of fall feeding further fall.

Sustained FIIs selling has added to damage on the bourses. As per provisional data, FIIs sold shares worth a net Rs1,459 crore on Friday — the day when the Sensex plunged 453 points. The outflow of FIIs in the past six trading sessions between May 11 to 18 May aggregated Rs3,676 crore.

BSE yesterday clocked a turnover of Rs3,978 crore, much lower than Friday's Rs 5,134 crore.

Index heavyweights Reliance Industries (down 5 per cent to Rs926.050 and Infosys (down 5.3 per cent to Rs2,814) ended with heavy losses for the day. Though select side counters edged higher, a host of small-cap and mid-cap stocks plunged yesterday.

Metal stocks were hit hard following a setback in global metal prices. Hindustan Zinc lost 20 per cent to Rs 631.55, Sterlite Industries shed 11 per cent to Rs360.30, Nalco shed 6.4 per cent to Rs229, Tata Steel lost 7.6 per cent to Rs465 and Hindalco lost 4.6 per cent to Rs180.

Tata Motors shed 7.5 per cent to Rs785, after it reported a lower than expected 18 per cent growth in Q4 net profit.

Some of the major losers among Sensex constituents were Wipro (down 8 per cent to Rs451), Grasim (down 8 per cent to Rs1,770), UltraTech Cement (down 8 per cent to Rs635), Maruti Udyog (down 7 per cent to Rs729) and TCS (down 6.5 per cent to Rs1,770.

Among the stocks that ended in positive territory were Satyam Computer (up 2.3 per cent to Rs680), Bhel (up 0.5 per cent to Rs1,970), Cipla (up 0.2 per cent to Rs222), and ICICI Bank (up 0.2 per cent to Rs558).

The market breadth was extremely weak. As many as 2,095 stocks rose on BSE as compared to 230 stocks that declined while 33 stocks were unchanged.

Meanwhile, RBI yesterday said it is in touch with major settlement banks and the stock exchanges to ensure that payment obligations on the exchanges are met smoothly. The central bank's statement on availability of liquidity follows a 10 per cent fall in share prices in early trade yesterday.

Economic affairs secretary Ashok Jha told reporters that foreign institutional investors and mutual funds were net buyers yesterday, despite a large fall in the main stock index — more than 10 per cent at one stage. He also said the country's economic fundamentals were sound, with inflation under control, gross domestic product likely to be strong in the fiscal year to end-March, 2007, and corporate profits buoyant.

Indian Finance Minister P. Chidambaram also said yesterday that retail investors need not worry over the slide in the stock market as the economic fundamentals of the country were strong.

"Ordinary investors need not worry as fundamentals of the economy are strong... the growth story I am confident will continue this year too," he said in the parliament.

More news from