Samvat 2057, which endured a host of hiccups, ended on a note of cautious optimism on Tuesday. The Bombay Stock Exchange sensex wound up at 3077.19.
The death of the age-old badla system and the ushering in of rolling settlements, futures and options could not lift the spirit on the Dalal Street. The shadows of the investigating agencies loomed large over the bourses for a major part of the Samvat, shattering investor confidence.
To add to the woes of the market, the Unit Trust of India (UTI), the largest domestic player on the bourses, suffered from the worst crisis in its history.
There were arrests of brokers and even fund managers including "one man army" Ketan Parekh and UTI chairman P S Subramanyam. The volumes on the bourses dipped to historic lows, hundreds of brokers closed shop and investors lost money. Economic activity continued to remain lacklustre, with most sectors of the economy in the throes of a slowdown. Despite several hiccups during the year, it ended on a note of cautious optimism.
Looking back, Samvat 2057 witnessed a major crisis of confidence on the stock market. The benchmark index, the Bombay Stock Exchange (BSE) Sensex, tested its new nine-year low at 2,594.87 on September 21.
On a year-on-year basis, the Sensex lost almost 666.42 points or 18 per cent to close at 3,077.19 today. The broader index, the S&P CNX Nifty, lost 167.35 points or 14.27 per cent to close at 1,005.40 today. Trading volumes on the BSE during the year dipped almost 33 per cent to 537.44 lakh shares. On the National Stock Exchange (NSE), the volume of shares traded declined by 22 per cent to 941.70 lakh.
The hype over technology stocks was finally over, with hot favorites such as Infosys Technology, Satyam Computer, Himachal Futuristic Communications, GTS (erstwhile Global Tele-Systems) losing sheen.
In contrast, old economy stocks such as Reliance Industries, Hindustan Lever, ITC and others remained firm. The meltdown on the US markets continued to put pressure on the domestic market. The Nasdaq Composite Index dipped by 43.02 per cent to 1,840.13.
A major crisis hit the market after finance minister Yashwant Sinha announced his dream budget.
On March 2, the BSE Sensex dipped by 4.13 per cent after a fresh batch of warnings emanating from the US technology companies rocked the Indian software sector. On March 4, the Securities and Exchange Board of India (Sebi) announced a probe into stock market volatility and inspected the books of several brokers, who allegedly played a role in the markets going downhill.
Then followed a series of events which hit market confidence. On March 12, Sebi suspended all broker directors of the BSE, including its president Anand Rathi, who allegedly sought privileged information. The crisis got compounded with worries of a payment crisis on the Calcutta Stock Exchange, where huge off-market transactions were conducted. The payment crisis virtually blew over the exchange which turned into a non-entity in the capital market. The crisis on the Calcutta Stock Exchange dealt a major blow to investor confidence. On March 9, the BSE Sensex closed over 4 per cent down amid worries of the effect of the spillover of the Calcutta Stock Exchange payments crisis.
The situation turned worse after Sinha announced, on March 13, the introduction of rolling settlements in 200 stocks, including all the A group shares, by July 2001, in order to curb excessive speculation in the stock markets. Later in April, Sebi took one of the rudest decisions for the market and put a ban on deferral products such as badla, automated lending and borrowing mechanism (ALBM) or BLESS from July 2.
Ketan Parekh, known as 'one-man army' found himself in the soup as the bear cartel tried to gore the bulls to death. Parekh is believed to have had a huge exposure in the Kolkata markets. He used Madhavpura Cooperative Bank to play in the market but got trapped in a Rs 137 crore pay-order scam. Bank of India, which lost money in the scam, approached the Central Bureau of Investigation. On March 29, the CBI arrested Parekh.
The government set up a joint parliamentary committee (JPC) to investigate the modus-operandi of the big brokers and the sharp rise and fall in stock prices. After more than six months of investigation, the committee is yet to get close to finalising its report.
The crisis at the biggest domestic mutual fund, UTI, dealt yet another blow to investor confidence during the year. For the first time, UTI suspended sales and repurchase of its flagship scheme Unit Scheme (US-64). Then followed the arrest of its then chairman P S Subramanyam for investing Rs 32.8 crore in a Cyberspace placement at a price of Rs 932 per share against the then market price of less than Rs 10. The crisis in UTI also led to the largest mutual fund in the country losing its key position as a dominant player in the stock market.
Foreign institutional investors which pumped in net investments of Rs 12,386 crore in the current calendar year became the key players in the market.
A new era was ushered in the Indian stock markets with the introduction of futures and options in 31 stocks, in July. Being new instruments for the markets, the initial response was unenthusiastic. The trading volumes on the BSE shrank to around Rs 700 crore and on the NSE to Rs 1,400 crore, versus volumes of more than Rs 7,000 crore in the badla era. This also saw several brokers shutting shop with liquidity condition becoming precarious.
But the series of calamities had not ended still, more followed. The biggest external blow to the market was the terrorist attack in the US on September 11. On September 21, the BSE Sensex hit a new nine-year low of 2,594.87 points. Software stocks were the worst hit. Most technology companies continued to issue profit warnings. FIIs turned aggressive sellers on the markets and sold more than Rs 1,000 crore worth of shares in this single month.
Even as the sentiment continued to be cautious, Sebi added some life to the markets towards the end of the year by introducing stock futures. And the Reserve Bank of India also allowed margin trading for banks. The twin moves have helped the markets tide over the liquidity squeeze. Stock futures are considered to be very similar to the age-old badla system. With sentiment recovering, markets expect Samvat 2058 to usher in a new dawn.
