Fear over VaR triggered Sensex fall, feel brokers

The BSE's move to slap special value-at-risk (VaR) margins of 100 per cent on T, TS and Z group stocks traded on the exchange led to a knee-jerk reaction in the market on Monday.

Fears that such margins would be slapped across the board led to a confusion and fall in the benchmark BSE Sensex by 148 points in a single session, brokers said.

Some market experts also feel that the fall was due to profit taking by a majority of players.

"I am happy about the decision as it is a good risk containment measure," said Deena Mehta, former BSE president. On market fall she said it was a small correction long overdue. Hemendra Damania of Edelweiss Securities said that the exchange seems to take pre-emptive measures to contain volatility and safeguard interests of investors.

"Profit-booking by several players has led to the fall in the market, besides the rumours and confusion over application of special margins on all the stocks. Instead only a few categories were slapped with margins." said Sharmila Joshi, Asit C Mehta Investment Intermediates.

"The market was also tired of rise in the benchmark continuously without respite over the last few days. This provides the much needed break from the spiral," she added.

According to some market sources, many of them missed finding the circular on VaR margins, which was said to have been issued by the BSE late on Friday.

"As a part of surveillance review and pursuant to the meeting with Sebi, the exchange with a view to take preventive surveillance measure to ensure market safety and safeguard the interest of the investors, has decided to levy 100 per cent VaR margin on scrips in the T, TS and Z groups with effect from Monday August 8, 2005," BSE said.

In view of 100 per cent VaR Margin in these scrips other margins like ELM, special margin etc would not be levied on these scrips, BSE added.