Margin call rattles Dalal St

As a cascading effect of the losses suffered by the market on Monday, early morning margin calls by brokers led to a 500-point tumble, intra-day, in the Sensex on Tuesday.

Open positions in the futures and options segment were in excess of Rs 44,000 crore, and there was fear that a sharp fall in the markets could lead to further selling pressure on account of margin calls.

Tuesday morning, the markets went into trade with a 462-point mauling in the market barometer. "Margin calls were the only reason for the big drop in the morning. Most brokers spent the first two hours asking clients to either square off their positions or pay the margin," said Prashant Bhansali, Renaissance Securities Ltd.

The clearing houses were asking brokers to pay additional margins for Tuesday's fall, and the terminals of more than 56 brokers were not operational as they could not cough up the money.

If a broker is unable to pay the margin, the NSE can disconnect the trading terminal of the broker and sell out the shares in his account.

"With the bull market in full run, our positions and our clients' positions were fully stretched. We did anticipate a correction but had not taken into consideration such a sharp correction. Earlier, the markets had gone down by 100-150 points and always bounced back. There was nothing in the technical charts also that suggested such a weakness. So, when the markets fell sharply on yesterday, we and our clients were not in a position to cough up the extra margin immediately. Our terminals were disconnected. However, we have made the necessary payments now and will be operational tomorrow," said a broking house head.

Brokers, however, point out that a sharp drop on account of margin calls was well in everybody's consideration before trading ensued on Tuesday.

Later, as the markets tumbled into the 11,300 levels, value buying saved the day. The upturn in the markets towards the end of the day was a result of short-covering, according to market analysts.

"All the indicators of on Tuesday "� margin calls, disconnection of terminals, short-covering "� are all indicative of a very uncertain market. Investors do not want to take a longer-term position and stick their neck out on whether the market movement will be upward or downward," said an analyst.