Mumbai, May 18: After the free fall on Monday that cost the stock market 565 points, a series of positive developments, including a massive salvage operation by financial institutions, led to a strong recovery of over 372 points in the sensex, with a sizeable part credited to speculation of Manmohan Singh becoming the next Prime Minister.
The BSE benchmark 30-share index opened firm at 4547.70 and later rallied sharply to an intra-day high of 4949.27 before closing at 4877.02, a net rise of 371.86 points — the second largest gain in the history of BSE.
Early morning trades saw prices bouncing off from their lows, which many players surmised as a relief rally. The momentum picked up dramatically as news of Sonia Gandhi opting out trickled in around 2.30 pm. The gains accelerated in the last one hour and the sensex closed up 8.25 per cent.
“It’s a rebound, I guess,” says Arun Kejriwal of Kejriwal Research & Investment Services. “To sustain this, we need to see a common minimum programme and a Prime Minister,” he added.
The market recouped a good part of its Black-Monday losses today due to bargain hunting and short covering in blue chip stocks. The early morning session saw a salvage operation by Indian financial institutions.
HDFC Bank, a blue chip stock, rose 24.47 per cent to Rs 356.30. Wipro gained 22.33 per cent, recovering from its intra-day low of Rs 1,230 to Rs 1543.60.
PSU stocks were back in favour. After being dumped as the privatisation programme hit a roadblock, they staged a smart recovery as the dividend paying companies are expected to give good yields at current prices. HPCL closed at Rs 318.85, up 1.29 per cent over its previous close.
The rally was enlivened by the Reserve Bank’s decision to reduce the margins by 10 per cent to 40 per cent for bank financing against shares. Further, the minimum cash margin of 25 per cent (within the margin of 50 per cent) was cut to 20 per cent.
The banking and technology sectors shot into prominence on the back of continuous buy orders at attractive price levels.
The banking index shot up 276.99 points or 12.13 per cent to close at 2561.08 compared with its previous close of 2284.09 and the BSE-infotech index zoomed 175.81 points or 11.34 per cent to 1726.51 from its last close of 1550.70. The volume of business rose sharply to Rs 2479.88 crore from Rs 2059.56 crore on Monday.
The BSE-PSU index bounced back by 185.64 points or 6.65 per cent to 2979.01 against Monday’s close of 2793.37.
FIIs quiet. Who sold'
Interestingly, the market regulator’s figures have revealed that foreign institutional investors, who have been selling in the past week, were quiet on Monday. FIIs invested Rs 1,236.40 crore and sold shares worth Rs 1,299.90 crore, with a net sales figure of Rs 63.60 crore. Therefore, their contribution to the fall was very small. Today, FIIs made fairly good investments in blue-chips at the prevailing lower levels.
The FII net sales figures fuelled several conspiracy theories on who pushed the markets off the cliff on Monday. Dealers say if banks were selling it would have been during mid-day trades and not in the morning. It could even be FIIs who sold big during early trades only to buy later, say some analysts. Or it could be some treasury market operations by companies, they hinted.
Sebi swings into action
The Securities and Exchange Board of India (Sebi) today met exchange representatives to take stock of the situation. The regulator asserted that the financial markets were safe for investing and there was no payment crisis.
Sebi said the risk management systems at the exchanges were “robust” enough to withstand extreme volatility and there would not be any problem in settlement of trades. The statement had a positive impact.