Mumbai/New Delhi, May 22: The second anniversary was almost as bad as the debut for the Manmohan Singh government.
Just as on the morning of May 17, 2004, when trading had to be suspended after the stock market collapsed on the Congress-led coalition winning the polls, today the sensex dropped by an unprecedented 1111.70 points, forcing the authorities to shut shop.
For the first time in three months, the Bombay Stock Exchange’s market indicator fell below the celebrated level of 10000. The 10.16 per cent dip touched off what are called circuit filters ' an alarm which when sounded automatically stops trading.
It was the third straight trading day of disaster, the sensex having lost nearly 1300 points on Thursday and Friday in line with global markets. Stocks ' and commodities ' fell today, too, across Asia, Europe and the US.
As global forces pummelled India, local institutional buyers mounted a rescue on government cue.
Finance minister P. Chidambaram scampered to contain the damage. “My message to retail investors is to stay invested. FIIs are here to stay. There is no reason to panic'. Banks will provide money to those who want to provide margin calls.”
Margins are payments brokers have to make to the stock exchange against purchases.
Ministry officials advised government-run financial institutions to buy. When the market reopened after an hour’s break, a surge of buying pulled the sensex up by over 650 points at close.
“The fall is a culmination of global factors, which triggered a sell-off in other markets and asset classes such as the bond and commodities markets,” said Jai Prakash Sinha of Kotak Securities.
“The fall in our markets has been amplified by technical factors such as margin-call triggers and fears of a payment crisis,” said A.K. Sridhar of UTI Mutual Fund.
Such a crisis arises when brokers fail to meet their payment commitments.
“I have spoken to RBI, there is ample liquidity. Banks have been asked to provide liquidity,” Chidambaram said.
The talking-up, backed by heavy purchases by domestic institutions and mutual funds, worked as the sensex ended the day at 10,481.77.
“The way the markets reversed shows that there is nothing wrong fundamentally,” said Vallabh Bhansali, chairman of Enam Financial Consultants.