The Hindu Business Line : Markets in free fall

Mumbai, Oct. 24 Investors were witness to one of the blackest days in Indian stock market history as FIIs shed a record quantity of Indian stocks sending the Sensex plunging 11 per cent on Friday, driving it back three years in time.

The index collapsed to 2005 levels, breaching the 9000-mark to close at 8701 (down 1070.63); while the Nifty declined 12.2 per cent, to close at 2584.

The corporate mood was sombre as many of the scrips hit decade-lows. “We saw some of the index stalwarts breaking down today. The bluest of blue chips are seeing capitulation,” said Mr. P.K. Agrawal, President, Bonanza Portfolio.

Brokers wondered how they would meet their costs in the coming days, and the retail investor was declared quite dead by all.

“Never in the past has the market fall been so steep and for so long,” said Mr. Arun Kejriwal who heads Kejriwal Research and Information Services. “If there was one saving grace on Friday, it was that volumes were very low.” Only 61.4 lakh trades took place on NSE today and 26 lakh on BSE.

F&O contracts numbered 40.4 lakh on NSE and 535 on BSE.

Disappointment with the RBI policy and a rout of stocks worldwide led to the bloodbath, said brokers.

“After 11 am today the markets went into a tailspin as the RBI policy did not have anything to cheer them,” said Mr. Mohit Thadani, Vice-President and Head, Equity Advisory Group, (Wealth Management) at Motilal Oswal Securities. The central bank did not change any of the key interest rates; on the other hand, the GDP forecast was pegged down from 8 per cent to 7.5 per cent.

The markets opened with a negative gap tracking other Asian markets which were trading down. The Nikkei was down 9.6 per cent and the Hang Seng down 4.66 per cent. The European markets too were trading in the red on Friday, the FTSE tanking 7 per cent. The Dow too was down 500 points overnight Thursday.

FIIs were net sellers of equities for Rs. 1,431 crore; their net sales this year exceeding the $ 12 billion level. Although domestic institutions bought equities for over Rs. 500 crore, this had little impact.

“There was a lot of distress selling today as people were just dumping stocks irrespective of the price at which they were trading,” said Mr. Sangeetha Purushottam, head of Institutional business, Religare Securities.

Domestic market players were angry that Indian stocks appeared to be completely at the mercy of FIIs though they conceded that the genesis of the bubble was evident even as stocks unnaturally rose early this year. “But it is almost sacrilegious to say anything about the markets when they are rising,” said the head of a brokerage.

Retail investors are as good as dead, said a broker. Having burnt their fingers very badly in January-March this year, they have kept away completely. “There are a few retail investors picking blue chip stocks in small quantities, especially stocks which can yield dividend rather than profits from appreciation,” said a broker.

Defaults faced by brokers are very little as they as well as retail investors had learnt from the margin pressures of the January 2008 debacle, he said.

SEBI asks FIIs to reverse positions on Educomp, Reliance Petro

SEBI has advised FIIs to reverse their positions on Educomp Solutions and Reliance Petroleum Ltd, in a circular issued on Friday.

This is the first time that SEBI is explicitly advising FIIs to reverse their short positions involving lending of Indian securities overseas.

The scrips have been lent to foreign entities by FIIs, according to the SEBI’s compilation of securities lent by FIIs overseas, posted on its website.