Mumbai, Oct. 21: A sellers’ siege smothered markets today, cutting short a rally that many said would hoist the BSE sensex atop 5,000 points before the festival of lights ushers in a luminous business calendar.
They call it a correction, but with 175 points gone in the space of two days, few were willing to bet on a day when 28 of the 30 shares that make up the index slumped.
“We are in a corrective phase,” said a fund manager for a leading investment house managing funds for high net worth clients. “The premiums at the derivative segment have touched unrealistic levels of 3-4 per cent as such exorbitant levels even in typical bull market cannot be justified,” he explained.
Foreign investors thus far the greatest optimists of the Indian stocks markets and who pumped more than US $ One billion dollar was reportedly rumoured to have sold in the derivative segment. The fall was so pervasive, that out of 30 BSE sensex stocks 28 were in the red.
A forward premium is the difference between the rates quoted in the cash segment and the derivatives segment and in a typical bull market, the derivatives segment is quoted at a premium to the cash.
The sharp fall was precipitated due to the additional exposure margins imposed by National Stock Exchange (NSE) on 19 stocks in the derivatives segment, which became effective today, dealers said. Higher margins reduced arbitrage yields.
Due to huge volatility, the futures and options segment of the NSE witnessed record volumes of Rs 21,000 crore today.
“It is just a mere blip for one or two days,” a dealer affiliated to an FII broking house said. The market, while shedding precious points, is still optimistic of the sensex touching 5000 in this festive season. “It will be a nice gift for equity investors,” the dealer remarked.
The big question weighing in the minds of punters is when the foreign investment flow will abate. “It will be a test of the inherent strength in the market,” an institutional broker said.
On a day marked by intense volatility, the sensex gyrated on alternate bouts of selling and buying within the intra-day range of 153.23 points, before closing with a 95.95-point loss, or 1.98 per cent lower, at 4,755.72. It touched a high of 4,880.66 and a low of 4,727.43 in the session. NSE’s nifty lost 36.20 points at 1,506.50.
A recent data on FII positions in the derivatives market reveal that they have started selling index and stock futures on a large scale. Domestic institutions might have sold stocks and operators were also unwinding positions in the futures and options market.