The Hindu Business Line : Sensex drops 541 on global fall

Bears took control of stock markets across the world and the Indian bourses followed just the same on Friday. Major sell-off in the US stock markets on Thursday over concerns of further weakness in the housing market led to a decline in key benchmark indices across Asia.

The Dow Jones industrial average index tumbled more than 300 points yesterday while all Asian markets posted a drop of over 2 per cent. Nikkei fell 2.36 per cent, S&P 500 dipped 2.23 per cent, while Kospi plunged 4.1 per cent.

The Indian bourses, in turn, produced a matching reaction with the BSE-30 Sensex posting its fourth largest fall ever.

The BSE Sensex shed 541.74 points or 3.43 per cent to end its upward one-way streak at 15,234.57. Intra-day, the Sensex had dropped 616.63 points.

Volatility index high

Foreign funds were on a selling spree; they were net sellers at Rs 1,475 crore as per the provisional figures on the NSE. However, the domestic institutions and retail investors both turned net buyers at Rs 727.32 crore and Rs 258.76 crore respectively.

Analysts indicated the presence of some factors that could dampen the markets even further. “The volatility index is very high. Also, the global liquidity flow will decide the further course of the market. We will have to wait for the close of the US markets today,” said Mr Amitabh Chakraborty, President Equity of Religare.

“The interest rate movement and the weakening US currency will affect flows from the US markets to emerging markets. This could hit the markets in the short-term,” said Ms Shahina Mukadam, Head – Research, IDBI Capital Markets Services Ltd.

Derivative trading

Derivative trading also favoured the bears. “Today, there has been an addition of 1,57,965 contracts in the open interest position in the futures markets where an increase in the number of contracts always reinforces the direction the cash market is following on the particular day. There has been a build up of short positions here,” said Mr Gurudatta Dhanokar, derivative strategist, Almondz Global Securities Ltd.

The high leveraged positions in the derivative contracts may also impact the markets. “Of the total amount of over Rs 1 lakh crore in the futures contract, almost 10-15 per cent is leveraged, which has to leave the market. These investors will cut losses or book profits indicating a further decline in the markets,” said Mr Ravindra Kasliwala, Head – Equity, Inventure Growth and Securities.

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