Global worries create panic on Dalal Street

MUMBAI: The mayhem on D-Street on Monday came as quite a shock, with investors prepared for a much gentler fall in the markets as global cues continued to look weak. So what spooked the markets so badly, considering the fact whispers of the US market slipping into recession had been around for a while? It was a host of factors that contributed, say market players.The Indian markets had fallen a lot less compared to other global markets, and suddenly caught up in just two days.
This began with FIIs selling last week, although not in huge amounts. This left a lot of domestic and retail investors in the market. Many of these retail investors were also new to the market, and had not experienced a sharp correction without a quick recovery. "Many investors turned speculators and as markets contuniued to rally, lots of investment calls were just gambling, as the fundamentals of the stock were being overlooked," said Ambareesh Baliga. A lot of these were gambling with borrowed funds.
Since Friday, the market had been seeing a lot of margin pressure. Investors who had leveraged their positions to buy stocks were forced to cut their losses, which had a cascading effect on the markets. The open interest position was high at Rs 1.36 lakh crore.
"Speculative activity was too high and hence the sharpness of the decline, especially in the mid and small cap segments. The bottom-line is that there has been no major change in the economic and corporate fundamentals. While interest rate sensitive and export-oriented sectors have been impacted, the overall earnings appears to remain healthy, reflected by the strong advance tax outflows," said Sukumar Rajah, CIO, Franklin Templeton MF.
Some institutions and corporations, which had bought aggressively in the first half of the month to prop up markets, started unwinding positions this week. The falling market triggered a lot of panic selling among investors as well, as even those who were not leveraged tried to get their money off the table.