Feelgood now becomes feel nervous

After the bull frenzy comes the bear hug. Bears are having a field day, pulling down the market by various rumours and manipulations. As a r...

After the bull frenzy comes the bear hug. Bears are having a field day, pulling down the market by various rumours and manipulations. As a result, BSE Sensex plunged by another 164 points on Thursday in a day-long non-stop roller-coaster ride. The crash comes after the 306-point crash in the last two days, prompting Sebi to step in and warn the manipulators.

The reasons for market crash were varied depending upon whom you ask. Samples: rumours of a ban on FII investment through participatory notes (PNs), higher margin calls, fears of FII withdrawal, looming elections and Sebi move to get tough with sub-brokers.

Says Hitesh Seth, analyst with Prabhudas Lilladhar, “The reported ban on PN was the trigger and the market went into a free fall. Long-term holders, FIIs and domestic operators are selling heavily. At this rate, I see the market trying to stabilise at 5,600, but if this trend continues, it might fall further.”

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The nervousness on Dalal Street was evident in wide swings in indices and stocks. Sensex moved in an intra-day range of 285 points in volatile trading. On Wednesday also, Sensex was volatile and moved over 200 points before plunging by 164 points. With Thursday’s fall, Sensex has lost 470 points in just three sessions and 244 points for the year 2004 so far.

From an all-time high of 6,249.60 touched on January 9, 2004, Sensex has now lost 655.86 points, or 10.49%. The fall has surprised all those investors who were pinning great hopes on the market. The feel-good factor unleashed by the government failed to sustain the bullish trend. The corporate sector is doing well, economic growth has picked up and the government has announced a host of sops to all the segments.

Alarmed by falling markets, the Sebi stepped in and warned market operators against ‘floating rumours’ which has led to high volatility in the stocks market and said it will not hesitate to take stringent action against those found indulging in such acts. “During last few days, the stock market has witnessed high volatility and it is gathered that baseless rumours were being floated in the market,” Sebi said. Dealers also attributed the fall to selling in the futures and options (F&O) segment ahead of the expiry of January series contracts next week.

“PNs are being misused. The move to ban it is a one-time effort at cleaning the system. Since the market was expecting a correction, this is more of that. The only problem is that it happened faster than expected,” says Paresh Khandwalla, a leading BSE dealer. “A lot of day traders are booking profits. At this rate, I see the market losing another 70 to 100 points. By mid-March the markets will stabilise at 6250,” he predicts.

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There were also rumours that the finance ministry is planning to convene a meeting with Sebi, the BSE and NSE to take a stock of the massive inflows from FIIs in the recent past. What precipitated the crash in the last three days is margin calls. Lenders who provided funds to stock investors and operators are asking them to pay a higher margin on their loans.