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Retail investors in a jam

Despite the recovery in equity markets after a seven-session long fall, retail investors remain a worried lot, reports Vyas Mohan.

business Updated: Jan 28, 2008 22:40 IST
Vyas Mohan

First they ran to sell, now they can’t buy easily. Despite the recovery in equity markets after a seven-session long fall, retail investors remain a worried lot. While many witnessed wealth made over years washout at the blink of an eyelid, a lot of them who missed the four-year long bull run are still not able to buy stocks after the falling Sensex offered what many believe to be a buying opportunity.

According to market participants, despite the bounce back from the recent fall, 1000-odd brokers' terminals remained closed on Monday because they had not paid additional margins to the stock exchanges. Investors and brokers need to pay up additional money, called margins, to compensate for the decline in the prices of partly paid-for stocks.

Amid weak global cues, domestic equities ended a highly volatile session in the red on Monday. Mumbai’s 30-share Sensex, which had lost 918 points – about 5 per cent — in intra-day trade, staged a smart recovery to end at 18,152 points (down by 208 points or 1.14 per cent), as banking and automobile stocks rallied ahead of the Reserve Bank of India's credit policy meeting on Tuesday. The broader Nifty of the National Stock Exchange closed at 5274.10 points, down by 109 points or 2 per cent.

Brokers, however have a different version. Angry investors attacked brokerage branches in Mumbai on Monday for not accepting buy orders, dealers said. Brokers themselves have overshot the margin limit given by stock exchanges and are yet to cough up additional money or sell shares, dealers said.

Rumours of brokers' inability to pay-up additional money to the stock exchanges, and thus being forced to sell shares, has scared off many investors.

"I had transferred my shares last year to a large retail brokerage firm to be managed under their portfolio management scheme. Hearing about the problems brokers are facing after last week's crash, I wanted to pull my shares back from the PMS and transfer them into my demat account. But the broker first said he would pay cash and not transfer my shares. However, now they have agreed to transfer my shares into the demat account," said a 65-year-old woman investor.

"It is not the brokers' or the investors' fault that the markets crashed last week. Margin calls get triggered in cases of such big falls and brokers will be forced by the exchanges to sell shares if margins are not paid," said Janak Thacker, CEO of Lalkar Securities.

Meanwhile, the NSE is understood to have increased value-at-risk margins on several speculative stocks by around 30 per cent from week-ago levels. However, analysts expect markets to stabilise in course of the week on sustained buying interest at current levels.