The frenzy over Gamestop that has badly hurt the highly leveraged global hedge funds industry has now started hitting India’s stock markets too. Buckling under the pressure of foreign funds selling, the Sensex and Nifty closed with declines for the second consecutive week on Friday.

On Friday, Sensex fell by 1.26 percent or 588 points to close at 46,285. The Nifty index fell by 1.32 percent or 182 points at 13,634.

There was a sudden crash in Sensex and Nifty post 3 p.m. and the entire market fall came in just 5-7 minutes, traders said. In the cash segment alone, the foreign portfolio investors (FPIs) sold stocks worth nearly ₹6,000 crore on Friday. This was in addition to more than ₹6,800 crore worth of selling in the cash segment in Indian markets since January 25.

Scurrying for margin

GameStop is a US company where short-sellers mainly hedge funds burnt their hands as social media prompted retail investors to go long on the stock. The stock was trading at around $4 for a few months ago but touched a high of $483 this week on Nasdaq. This left little chance for the hedge fund to cover their shorts. This event has had a domino effect even on other global hedge funds, who have been forced to close their short positions.

Worst week since May 2020

In terms of weekly close, the past two weeks have been the worst for India’s stock markets since May 2020. According to dealers, more than 13 lakh Nifty futures came for selling when the index was trading at around 13,800 and such massive sell orders took the index to around 13,600. The size of that amount of Nifty selling is between ₹1,500 crore and ₹1,800 crore and it requires nearly ₹200 crore worth of margin, dealers said. Index futures worth nearly ₹5,500 crore have been sold in January so far.

Just last week, Nifty index futures worth more than 1,60,000 crore contracts worth more than ₹22,000 crore were outstanding.

“The markets are now more lighter in terms of long bets. The markets will surprise traders on the upside as the majority of traders have turned pessimists,” said Rohit Srivastava, founder and strategist, Indiacharts. Nifty Call options worth more than ₹67,000 crore were off-loaded, highest ever, Srivastava said.