Market mayhem unabated

Sensex tanks 457 pts; trading suspended after 1,111-point fall.

A series of "interventions" by regulators as well as the finance ministry capped today's loss of the BSE Sensex at 4.1 per cent (456.84 points) after a free fall of over 10 per cent or 1,111.70 points.

For the second time in the history of Indian stock markets, trading was halted for one hour as the exchanges used the index-based circuit breakers.

The initial slide, triggered by investors offloading shares to meet broker payments, shaved off 22 per cent from the Sensex when it reached its peak eight sessions back. It is also the biggest intra-day fall in the market's history.

By the end of the day, investors' wealth was eroded by Rs 1,66,979 crore. Since May 11, when the Sensex reached its peak, over Rs 6,00,400 crore worth of market capitalisation has been wiped out.

Among Asian markets, the Jakarta composite index closed trade with a loss of over 6 per cent and the Singapore and Hong Kong markets also lost in excess of 3 per cent.

The bourses opened to choppy trade in the morning and the Sensex quickly moved into the red, shedding over 300 points. When sharp selling ensued "" both by brokers who were trying to rescue their positions and at least by one exchange, liquidating stocks from brokers' accounts "" there were virtually no buyers, which led to an over 10 per cent fall in both the indices.

Between 11:56 am and 12:56 pm, Finance Minister P Chidambaram and Securities and Exchange Board of India Chairman M Damodaran assured market participants that there was no payment crisis.

The Reserve Bank of India, too, stepped in, issuing a statement saying the banking regulator had been in touch with major settlement banks and stock exchanges to ensure that the payment obligations of the exchanges were met smoothly.

When trading ensued markets began recovering on the back of buying support from domestic financial institutions.

Finally, the Sensex ended the day with a loss of 456.84 points, down 4.1 per cent at 10,481.77. The 50 stock benchmark index, Nifty, ended trade on Monday with a loss of 165.55 points or 5.1 per cent at 3081.35.

Buying activity, when markets reopened , was centered around blue-chip heavyweight stocks. Investors, led by large domestic financial institutions and mutual funds, made the most of this value buying opportunity, leading to buoyancy in the cement, pharmaceutical and banking counters, among others.

Several stocks, cutting across sectors, managed to wipe off a significant portion of their losses. Though the market closed in the red at the end of the day, it had come a long way from the dismal levels to which it had sunk in the morning.

"The primary reason for today's sharp fall was the panic selling caused owing to margin calls and reports that some brokers had to sell their holdings to meet the pay-ins. But later in the afternoon, many domestic and overseas institutions supported the market by value-picking at the lower levels," said Manish Kanchan, CEO, Ambit Capital.

Market experts said the volatility would eventually slow down after the F&O contracts expire on Thursday. "Market will remain extremely volatile till Thursday but later will settle down to a trading band of 9,500-10,500," said a broker.

Amit Chandra, joint managing director, DSP Merrill Lynch, said, "There is no reason to panic from the fall. If anything, the deep correction provides a buying opportunity for long term investors. We have already seen some buying interest come back into the market and as margin calls work their way through the system, we expect panic selling to ebb and the market to return to trading on strong long-term fundamentals."

Foreign institutional investors (FIIs) sold equities worth Rs 872.49 crore today. Since the beginning of May, they have been net sellers to the tune of Rs 1,361.3 crore. Domestic mutual funds, on the hand, have been net buyers to the tune of Rs 4,430.64 crore this month.

The biggest losers were metal makers, which tracked a slide in metal prices on the London Metal Exchange. Hindustan Zinc lost nearly 20 per cent to Rs 633.15 and Hindalco shed 4.8 per cent to Rs 179.70. Tata Motors fell 10.24 per cent to Rs 761.95.

The BSE consumer durable goods index was the largest loser falling 10.04 per cent (315.82 points) to 2,829.59 against Friday's close of 3,145.41. The metal index fell 7 per cent (615.48 points) to 8,089.02,and capital goods index 5.8 per cent to 7,332.67.

The combined turnover of the BSE and NSE was 14 per cent lower at Rs 13,716 crore today than Rs 15,935.88 crore on Friday. Over 1,180 stocks hit the lower limit of circuit filter today, 794 stocks hit three-month low, 309 stocks 52-week low and 62 stock an all-time low.