The Hindu Business Line : Sensex sheds 101 points on overbought futures position

The 30-share Sensitive Index of the Bombay Stock Exchange (BSE) fell 101.20 points or 2.39 per cent, the steepest fall since August 25 when the twin bomb blasts in Mumbai pulled it down 120 points.

The Sensex ended the day at 4,134.15. Dealers said that it is likely to hold the downward course and may test the 4,000-level soon. The BSE PSU index fell 3.9 per cent or 106.23 points to 2,621.94.

Under pressure today were heavyweights Reliance Industries, which fell 2.8 per cent, Hindustan Lever that fell nearly 3.5 per cent and SBI, which lost almost five per cent value. Except HPCL and Glaxo, all other Sensex stocks fell.

The 50-share S&P CNX Nifty of the National Stock Exchange (NSE) shed 39.25 points to close at 1,302.35. A technical analyst said that it could fall steeply again if it goes below 1,275.

Even though the fall is being seen as an expected correction, dealers said that the main reason for the fall is huge overbought positions in the futures and options (F&O) market.

According to a dealer, retail investors have built up a position in excess of Rs 8,000 crore, which is now being reduced. Many stock futures are trading at about 95 per cent of their market limit.

A technical analyst with a large brokerage said that there could be some merit in the argument that arbitrage positions in the F&O segment are being unwound.

"Volumes in October futures may start building up in a day or two, however," he added.

According to him, the market, which has already seen a fall of almost seven per cent, is likely to fall another 3-4 per cent.

"I expect it to become range-bound for a while thereafter. The Nifty may move in a band between 1,275 and 1,375 for a few days."

However, some investors have already shifted to a wait-and-watch mode. Several mutual fund managers have increased their cash positions.

Similarly, a couple of large domestic institutions have begun bargain hunting. Strong buying on declines was noticed in stocks such as Ranbaxy and Infosys.

While there was weakness in banking and public sector stocks, the software sector was more or less stable. Topline pharmaceutical company stocks were also finding buyers at lower levels, a dealer said.

In general, dealers are expecting the markets to remain choppy for a couple of days more.

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