Left Hand drive scars markets

Blood on the Street: Sensex registers biggest single-day fall of 564 pts; BSE shut twice.

It was a massacre "" left, right and centre. The fallout: a Rs 1,22,921 crore wipe-out of investor wealth in one day, the largest ever. Indices dropped like a stone "" the Sensex by 842.37 points intra-day, and the Nifty by 290.20 points intra-day.

The market hit the circuit breaker twice during the day, leading to a halt each in trading. And the Bombay Stock Exchange building reverberated to cries of "Sonia Gandhi, hai, hai," as distraught and angry brokers blamed the Congress' Left allies for the crisis.

For every one share that gained during the day, 10 lost ground dramatically. A record 291 scrips hit the lower circuit. Sub-brokers in Gujarat and elsewhere were set to go belly up as margin calls from the stock exchanges forced them to sell at ever-falling prices.

The rupee temporarily breached the 46 mark against the dollar before the Reserve Bank of India stepped in to halt the slide by offering liquidity support.

The Bombay Stock Exchange (BSE) Sensex collapsed 842.37 points to the day's low of 4,227.50 in intra-day trades, its largest intra-day fall, before recovering somewhat to close at 4,505.16, down 11.14 per cent (564.71 points) over Friday's close .

This is the second biggest fall of the Sensex in its lifetime. The breadth of the market was extremely negative. The 30-scrip Sensex basket had 29 losers, with only Zee Telefilms bucking the trend, up 6.44 per cent to Rs 120.65 for inexplicable reasons. The Nifty fell 193.61 points to close at 1,388.75 points.

The market capitalisation of BSE stocks fell below the Rs 10,00,000 crore mark for the first time in six months, dropping to Rs 9,49,978 crore. With this, investors have seen Rs 3,57,487 crore (Rs 3.58 trillion) of their wealth go up in smoke since the first exit poll on April 23, 2004.

The RBI announced a slew of measures to enable banks to provide liquidity to brokers and dollars to foreign institutional investors (FIIs) seeking an exit from Indian markets, if they so desired.

The BSE capital goods sector index fell 14.58 per cent, followed by the Bankex, down 13.48 per cent, the BSE PSU index (down 13.34 per cent) and the IT sector index (down 12.42 pert cent).

Reliance Energy was the biggest loser in the Sensex basket, down 25.55 per cent to Rs 477.55, followed by HDFC Bank, down 20.63 per cent to Rs 286.25. Bhel fell 20.32 per cent to Rs 398.30, Tata Power was down 19.09 per cent to Rs 261.55 and Wipro 18.36 per cent to Rs 1261.85.

Heavyweight Reliance Industries was down 15.35 per cent to Rs 403.60, HLL fell 15.02 per cent to Rs 120.25, State Bank of India was down 13.18 per cent to Rs 447 and ONGC fell 12.84 per cent to Rs 629.75.

Lack of buying was visible with traded volumes going sharply down; the cash market turnover was at Rs 2,059.30 crore on the BSE and Rs 4,032.15 crore on the National Stock exchange (NSE).

Market-wide circuit filters were hit twice today with trading on the BSE and NSE halted two times as the Sensex and the National Stock Exchange (NSE) Nifty crashed past the 10 per cent mark, and the 15 per cent mark immediately after trading resumed after an one-hour halt.

Apart from the pressure of margin calls, brokers said that rising oil prices, fears of a hike in US interest rates and the coming Chinese economic slowdown weighed heavily on investor sentiment.

The world markets were also weak, with the Indonesian Jakarta Composite down 7.5 per cent to 668.48, the South Korean Seoul Composite down 5.14 per cent to 728.98 points and the Taiwan weighted index down 5.10 per cent to 5482.96 points.

Back home, bargain buying at lower levels in the second half of the trading session helped the market recover somewhat.

The RBI also put out a reassuring statement saying that it was closely monitoring developments in the stockmarkets and other financial markets and "stands ready to provide sufficient liquidity to the banks for meeting all their payment obligations, including for any intra-day requirements."

But that was not enough to prevent brokers from singing a dirge on Dalal Street. A large number of brokers and investors gathered outside the BSE building shouting "Sonia Gandhi, hai, hai." A battery of armed policemen had to intervene and break up the mob. Police then surrounded the BSE building, which was cordoned off when trading was suspended.

The Congress and its allies are set to form the government after a surprise win over the BJP-led NDA last week. This sparked the initial selloff last week, led by foreign investors worried about the future of economic reforms.

Apprehension turned to panic on Monday on news that the Communists would support, but not join, the government. Investors felt this may allow the Leftists free to play spoilers without the responsibility of having to govern.

Says Rajesh Kamdar, a dealer at a local brokerage: "The Left added to the panic by saying subsidies should be increased and the privatisation ministry be scrapped."

It was left to Manmohan Singh, Congress leader and frontrunner for the finance minister's post, to step in to contain the damage. Singh told newspersons in the afternoon that stern action would be taken against market manipulators and assured investors that the coalition would adopt policies for a stable market.

Foreign funds, specially hedge funds, were major sellers today. They had sold Rs 504.50 crore of Indian shares on Friday, when the markets had fallen by 330 points and have been net sellers at Rs 2,652.50 crore in May so far.

Domestic institutions and mutual funds stepped in for a stint of buying worth Rs 400 crore when the exchanges opened for a second time in the afternoon, which pulled up the index to a certain extent. Life Insurance Corporation and UTI Mutual Fund were prominent buyers.

Ajay Bagga, chief executive officer, Kotak Mutual Fund, said, "We took the opportunity to buy at lower levels and shift sectors." A K Sridhar, chief investment officer with UTI Mutual Fund, said that they were mainly buying in the afternoon session.

The derivatives market saw volumes of Rs 4,700 crore, which was fairly good considering the truncated trading time. The open interest position in almost all stocks fell sharply and, on an overall basis, reduced by more than Rs 1,000 crore. The implied volatility in the case of Nifty futures rose to between 80 to 100 per cent.

There was an unwinding of positions as brokers found themselves unable to meet margin calls. The Nifty May series closed at a 50 per cent discount to the spot Nifty while in certain counters individual stock futures were trading at a discount of 30 per cent to spot prices.

On Friday, the FIIs had shorted the Nifty to the extent of 18 lakh shares while their open interest position was around 1.3 crore shares, more than 90 per cent of the total marketwide open interest position. FIIs that were unable to sell in the cash market have been systematically shorting the futures.

Sebi's executive director A K Batra, after a meeting with the stock exchanges in the evening, said that the regulator was not worried about market prices but about their integrity. Monday's fall has resulted in Rs 370 crore being collected as margins by the exchanges, he said.

He also said that both Friday's and Monday's settlements would be completed without any difficulty and without any recourse to BSE's trade guarantee fund.

"Sebi's risk management systems are robust enough to handle any crisis," he told reporters at the end of the meeting. The meeting was attended by BSE chief executive officer Manoj Vaish, NSE managing director Ravi Narain and C B Bhave, managing director of National Securities Depository Ltd, among others.

Batra said that Sebi had called for data from the exchanges on Monday's crash while the data for Friday was also being analysed for any anomalies.