Mumbai, Jan. 5: Stocks today sank in a selling tsunami triggered by fears of thinning foreign capital flows and signs that US interest rates will go up faster than expected.
By the time Dalal Street wound down to a close of 6458.84, the sensex had given up over 192 points and swung 316 points between its last close and the day's low; about Rs 58,616 crore of shareholder wealth was wiped out.
The plunge revived memories of the May 17 mayhem last year, when the BSE index bled over 500 points. It was not as gory this afternoon, but the extent of the slide caught those who had been expecting a correction off guard. The fact that 29 of the 30 stocks in the index closed in the red showed just how far the sellers were willing to go.
Metal stocks, among the day's biggest losers, plunged on reports that prices were falling on the London Metal Exchange. These firms rely heavily on exports, whose fortunes move in sync with overseas prices.
Hedge funds, which find themselves at the centre of allegations about market manipulation in a crash, were in the dock again. They were accused of triggering the profit booking. These funds have realised that they will no longer enjoy the double advantage of a strengthening rupee and spiralling value of Indian shares at the same time.
'Frankly, I am surprised,' said Ramesh Damani, a key BSE broker. 'The initial selling by hedge funds, presumably, caused panic and the cascading effect had investors scared,' said Samir Dholakia of another BSE brokerage.
Ved Prakash Chaturvedi, CEO of Tata Mutual Fund, saw four reasons for the collapse. 'First, the outstanding positions in the futures & options segment was too high at around Rs 15,000 crore. This needs to be reduced.'
Second, he felt the rupee's weakness against the dollar was something that could reverse the FII tide. In recent times, a strong rupee was a key driver of FII flows into India due to currency arbitrage opportunities in the domestic market.
Third, there has been a near-absence of fresh inflows from FIIs in the last few trading sessions. This acted as a big damper for the market, which has seen a liquidity-driven stock surge on the back of buying by foreign funds.
Brokers also blamed a Standard & Poor's warning that India's fiscal deficit was a cause for concern.
However, buyers are expected to be back again on Thursday, when Sebi's figures on actual FII deals could be crucial. 'Has anything changed in the economy' asked Tridib Pathak of Chola Mutual Fund. Most hope markets answer that question the way he would.