Mayhem continues on Dalal Street

Mayhem continues on Dalal Street
ENS ECONOMIC BUREAU

MUMBAI, MAR 13: It was a day of high drama on Dalal Street. Stocks and indices jumped up and down in highly volatile trading even as Finance Minister announced a plan to put the falling markets back on the rails, SEBI sacked the elected directors of the Bombay Stock Exchange and the political scenario became cloudy following revelations on a defence deal. The bellweather Sensex tanked by 310 points within a few minutes of opening but recovered later only to crash by another 350 points. After a roller-coaster ride of over 1,000 points, the index closed with a loss of 227 points.

The crisis-hit market was dragged down by the steep falls on Wall Street, fears of a possible payments crisis on domestic exchanges and more skeletons tumbling out of the cupboards of top brokers, exchange officials, government officials and politicians. Efforts of government-owned financial institutions to bail out the market met with only partial success. Sensex staged a dramatic recovery and was quoted past the 3700-level -- wiping out the 300 plus loss in less than 30 minutes -- after midesession following aggressive purchases by domestic institutions on the back of government's decision to corporatise stock exchanges.

But Sinha's 3-pronged strategy and FI purchases could not bail out the market which continued to remain extremely volatile despite a ban on naked short sales and hefty margins of 25 per cent on net outstanding sales position. Sensex plunged further on political uncertainties and finally closed with a loss of 227 points, and 700 points after the presentation of the Union budget. In a day of unprecedented swings that saw the Sensex leaping up and down by over 340 points at a stretch, Sensex fluctuated wildly in a range of 3777.48 and 3436.75 before ending at 22-month low of 3540.65 as against Monday's close of 3767.89, net a fall of 227.24 or 6.03 per cent.

The market capitalisation has fallen to Rs 569,666 crore from Rs 609,754 crore on Monday, a whopping loss of Rs 40,000 crore in a day and over Rs 146,000 crore after budget.

The panic selling during the second half of the session extended till 5 pm was triggered by strong fears of political instability due to a transcript of a defence deal which was displayed on a website. "Investors are fighting shy of the falling market," said businessman and investor Surendra Podar.

For the local markets, the global meltdown could not have come at a worse time, with market bulls already struggling to meet obligations and regulators undertaking a clean-up operation amid widespread talk of price manipulation and leaks of privileged information. The technology-rich Nasdaq composite index fell below 2,000 points on Monday losing 6.3 per cent following Cisco Systems Inc's announcement of substantial job cuts due to a weakening economy. The Dow Jones index plunged 436.37 points to 10,208.25, its lowest close since October 2000. Other Asian markets also crumpled amid increasing evidence US firms are being hit by a weakening economy.

The SEBI decision to sack broker members of the exchange from functioning as directors on the governing board (amid allegations privileged information was misused to bring the market down after the budget) made investors nervous. For the first time in its history of more than 125 years, brokers are not involved in the management of the Bombay Stock Exchange. Worries over payments problems on exchanges also added to the bearish sentiment. The Calcutta Stock Exchange last week just managed to scratch together the funds needed to avert a payment crisis, but brokers are waiting to see how smoothly Tuesday's pay-in on the National Stock Exchange proceeds.

This is for the third consecutive session that the Indian markets are being rocked by a string of allegations and price manipulations. Investors and operators were panic stricken right from the beginning of the session and watched in disbelief the drama unfolding during the seven-hour trading that was packed with negative and positive developments.

Trading, particularly in technology stocks, was volatile with some of the shares hitting both upper and lower side price bands during the day. Several old economy shares like ACC, Reliance, Larsen & Toubro, Tata Steel and BSES plunged in the selling spree. Most of the infotech shares were targets of brisk selling and struck to lower-level limits of 16 per cent. DSQ, HFCL, Global Telesystems and Digital bore the brunt of sustained selling.

"With this, euphoria generated by a market-friendly budget announced on February 28 has evaporated," said BSE dealer Pawan Dharnidharka. At its lowest on Tuesday, the index had lost 19 per cent since March 1.