A 20-50 per cent fall in several small- and mid-cap stocks over the past week caused severe margin pressure on domestic equity markets today.
The result: While the Bombay Stock Exchange (BSE) small- and mid-cap indices dipped 6 per cent and 4.5 per cent, respectively, the Sensitive Index was down 2.3 per cent, or 454 points. The Nifty slumped 137 points, to 5,767.
Large broking houses involved in margin funding offloaded stocks kept as collateral after several clients failed to fulfil augmented margin requirements. Margin funding is used by investors to take leveraged positions in stocks.
Following market regulator Sebi’s ban on operator Sanjay Dangi and the promoters of four companies last week, the share price of many small- and mid-cap stocks has nosedived. Talk of a crackdown on other operators has also surfaced. The crisis of confidence in the market deepened after an Intelligence Bureau report named some punters for price manipulation.
Last Friday, brokers and a few companies had stopped lending to leading operators. Since then, many stocks like those of Ruchi Soya, K S Oil, Ackruti City, Karuturi Global, Glodyne Technoserve, Shree Ashtavinayak Cine Vision, Welspun Corp, Parekh Aluminex, Midfield Industries, Comfort Intech, SVC Resources have crashed.
| DRIVEN DOWNHILL | |
| TOP SENSEX LOSERS | % Chg* |
| Reliance Infra | -6.62 |
| Reliance Com | -5.66 |
| Hindalco | -5.49 |
| TOP SENSEX FALLS THIS FISCAL | |
| Date | Points* |
| 19-May | -467.27 |
| 9-Dec | -454.12 |
| 25-May | -447.07 |
| *Over previous close Compiled by BS Research Bureau | |
These are counters that have seen high operator activity.
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Brokers told Business Standard that the heads of at least five leading broking houses met today in Mumbai to discuss the situation. "These brokers, running large margin-funding books, drew up a list of stocks where high operator activity was suspected. They raised the haircut (margin requirements) on these counters from around 20 per cent last week to as high as 70 per cent today. Also, they have come out with a list of stocks to avoid,” one broker said.
After this meeting, brokers gave their clients two hours to bolster margins, failing which they started squaring their positions at a high discount. The Sensex, which was down around 250 points until 2.30 pm, went into a tailspin. The fall in small- and mid-cap indices was twice that of the benchmark index during the last hour of trading.
Today's fall also put some mutual fund and portfolio managers in a peculiar situation. Since they could not sell small- and mid-cap stocks as their value witnessed a substantial fall in the past few trading sessions, they compensated by cutting their positions in blue-chip stocks or the futures & options segment.
Markets are not expected to be as volatile in the coming days. "The leveraged positions of big punters were cut to a great extent over the week. However, small- and mid-cap stocks will not witness a sharp rise, as funding won’t be available easily in the short run," said the head of the institutional desk at Mumbai-based brokerage.
The margin-funding book of non-banking financial companies of leading brokerage houses is estimated to be over Rs 10,000 crore.