The Hindu Business Line : Did margin calls trigger sell-off?

If Monday's fall of 463 points on the Bombay Stock Exchange forced broking firms to sell off positions of retail clients due to lack of margins, it was the turn of the high net-worth individuals (HNIs) on Thursday.

HNIs suffer

After the deep cut during mid-session, broking firms were forced to square off positions of the HNIs, dealers said.

"This did not allow the markets to recover," added a dealer.

Margin calls are triggered when stock prices fall beyond a point, forcing broking firms to square off clients' position as part of the risk management mechanism.

"Yes, it is true that the position of many clients would have been squared off, as they would not have been able to pay for their margins," said Mr Dinesh Thakkar, Managing Director, Angel Broking.

"The margin norms are well defined by the regulator. I am sure that as these are being followed, intermediaries would be fully covered, in terms of the risk," he added.

However, dealers said that not all positions were fully squared off on Thursday. "It seems that some more positions need to be squared off due to fresh margin calls generated on Thursday. So, the market would be choppy during the session tomorrow, but will close more or less at the same level," Mr Thakkar said.

Mr Nanadan Chakraborty, Head Research, Enam, said: "Given the high F&O position, various fears (oil, terrorism, and interest rates) and the vertical climb of market indices, any corrections will be very severe."

It was the biggest loss for investors in terms of market capitalisation on Thursday.

M-cap loss

On the BSE, market capitalisation slipped by a whopping Rs 2,23,416 crore. From the market peak registered on May 11, the decline in investor wealth is Rs 2,93,865 crore.

On the Sensex, market capitalisation dropped to the tune of Rs 50,955.92 crore from Wednesday.

The BSE-100 index market cap declined by Rs 7,01,85 crore and by Rs 92,244 crore for the BSE-500.