There is blood in the market
The wail rose above the towering symbol of India’s financial might on Monday morning, the crimson wave sweeping brokers out of dealing rooms as it snaked its way across the country.
The Monday mayhem — marked by the biggest ever intra-day fall of the sensex at one point by 780 points — wiped a record Rs 1,24,005 crore off the wealth of shareholders in companies listed on the Bombay Stock Exchange.
Trading on the market was suspended twice in quick succession as circuit-filters (a mechanism that stops trading when price fluctuations spin out of control) were triggered to calm the wave after wave of panic selling that followed the Left statements on divestment and its decision to stay out of a Congress-led government.
“This is unparalleled in history,” said Arun Kejriwal of Kejriwal Research and Investment Services. “There is blood in the market and some people have clearly played dirty,” he added.
Investors tried to stampede out, but found it impossible as exits were clogged by too many sell orders and too few buy orders.
The 30-share sensex — the barometer of the market mood — closed 564.71 points, or 11.14 per cent, lower at 4505.16 points, its lowest since last October. Monday’s was the largest single-day loss after a fall of 570.42 points in April 1992, at the height of the Harshad Mehta stock market scandal. Then, too, the mantle was on Manmohan Singh to fight the fire — only this time, he has been called to do so even before the baton has passed.
The Monday slide was led by public sector units that had been on the privatisation block. Many foreign institutional investors (FIIs) had bought these shares in anticipation that the reform process would continue apace.
The ONGC share fell nearly 13 per cent to Rs 629.75. Just two months ago, the government had divested 10 per cent equity in the company at Rs 750. Most of the allotment was made to FIIs which scooped up the shares within minutes of the issue opening.
Dredging Corporation lost 18 per cent to Rs 376.10 and Shipping Corporation of India dropped more than 19 per cent to Rs 69.60. Among the banks, State Bank lost more than 13 per cent to Rs 447.
The rupee and bonds both fell, having been boosted over the past year by record levels of foreign investment pouring in to Asia’s third-largest economy.
The market turmoil forced the Reserve Bank of India to make an emergency statement reassuring investors it would intervene if necessary to make sure the banking system and foreign exchange markets worked smoothly.
The comments helped drag the markets off their lows, with stocks down 10 per cent by mid-afternoon.
“There is absolute chaos and my retail clients have lost heavily,” said Hemang Raja, chief executive of brokerage IL&FS Investsmart. “People are talking about foreign funds looking to pull out $1-$2 billion from India.”
Foreign funds have sold at least $500 million worth of Indian shares in the past week, or about an eighth of what they had invested so far this year. “The fact that the Left parties have decided not to join the government is a further blow to sentiment,” Raja said.
The enforced breaks in trading during the day ensured that the stock markets stopped functioning for a collective three hours.
The mood on the markets has been nervous over the past few days as operators have been trying hard to make sense of the statements flying thick and fast from Delhi.
Burning their fingers like never before, marketmen shied away from predicting which way the markets would turn on Tuesday.
According to analysts, the depression in the Asian financial markets also heightened the woes in the Indian markets. Japan’s Nikkei index fell more than 3 per cent while Korea’s Kospi surrendered more than 5 per cent.
However, Mahesh Chhabria, chief operating officer at Enam Financial Consultants, said that despite the statements made by the communists, “the panic was not warranted”.