After wednesday’s freefall, M Damodaran, head of India’s market regulator Securities and Exchange Board of India (SEBI), had warned investors not to be swayed by rumours. Nobody was listening.
Rumours raged like wildfire through the markets. In a little over 80 minutes before traders shut shop, panic selling, driven by wild rumours, sent the Sensex plunging over 1,200 points from the day’s peak of 19,198 points. In the final hour alone, the benchmark index lost 754 points.
There was a bit of a pullback, but it was too little, too late. The Sensex ended with a 717-point loss. The bill for investors: Rs 2,22,000 crore wiped off total market capitalisation, which represents the market value of their investments in listed stocks.
Jitters over SEBI’s moves to regulate foreign inflows through the Participatory Note (PN) route had barely subsided, when the first rumour hit at 2.30 pm: the National Stock Exchange (NSE) was imposing extra margins, which meant brokers would have to ante up more cash as margin money for every trade.
This triggered a selling spree, as investors tried to cash out at higher prices and realise cash. By the time this rumour was squashed, the Sensex had started nosediving.
Within minutes, the rumour mill was grinding again. There were a series, each sending tidal waves of fear and selling sweeping through trading rooms — that hedge funds were dumping stock, that Sensex heavyweight Reliance Industries results would be poor, that the Reserve Bank was going to hike the cash reserve ratio.
All of them were unfounded. But by this time, buyers had vanished. As prices fell, automatic ‘sell’ orders, pre-programmed to limit losses, kicked in, accelerating the decline. BSE’s banking, realty, metal, PSU and capital goods indices all closed with over four per cent loss.
Expect trouble ahead. “Volatility will be the order of the day,” said Deepak Jasani, head of retail research, HDFC Securities.