Markets are paying the price for not banning short sale; crash due to panic

I don’t think the markets have over-reacted with the Nifty50 hitting lower circuit today. On the contrary, I think we have not reacted much to the developments. The worst part, according to me, is that when the global markets are melting, our government and regulators were not at all prepared for such a situation. 

In my view, the rundown on the market today is largely due to the players who are more speculators rather than investors in the global markets. And they have free entry and exit from our markets under the garb of a “free market”. This is a cause of worry.

China did put in place measures to curb such a thing. As soon as they got a whiff of the coronavirus epidemic, which has since become a pandemic, they immediately closed and stopped short-selling, put in heavy margin requirement and restricted the entry of traders in the market. All this was done last month. They are still a $144 trillion economy and have saved their investors from bearing the brunt of the coronavirus health scare and its impact on the economy. On the other hand, India and the other nations have not done that. We are paying a big price for not doing all this. 

The markets are paying the price for not banning short sale. Friday’s fall is not based on fundamentals, but on panic. This is also due to compulsion. There is capitulation happening in the markets right now. Capitulation is a stage when the liquidity dries out. And that’s why the markets are tumbling.

Deven Choksey is managing director of KR Choksey Investment Managers. Views are his own.

(As told to Puneet Wadhwa)