On Wednesday, equities across the globe were drenched in red. The trigger came from the Australian Securities Exchange (ASX), which dropped by 3.3 per cent following a 10 per cent fall in the shares of Macquarie Bank.
The bank’s warning to investors that two of its funds face losses of up to 25 per cent added to the existing worries in the US sub-prime mortgage market that has been reporting defaults in loans given to less credit- worthy borrowers.
This gave an opportunity for bears to tighten their grip by creating fresh short positions in the Indian market as foreign funds also sold equities, leading to a fall of 4 per cent in the indices. At the close of the trading day, the National Stock Exchange reported provisional net sales figure of Rs 1,255 crore by foreign institutional investors.
"The markets fell as investors booked profits and fresh short positions were added in the derivatives segment. The sub-prime loan worries in the US just spilled over to other markets," said Rajesh Jain, managing director, Pranav Securities
The Sensex closed the day lower by 3.96 per cent (615.22 points) at 14,935. The index, which entered the 15,000-plus trajectory barely a month ago, dipped below that mark for the first time in 14 trading sessions.
While all broader indices--the BSE-100, BSE-200 and BSE-500--lost over 4 per cent, the BSE Realty index emerged the biggest loser among sectoral indices, declining by over 6 percent. It was followed by Metals, Capital Goods, and Oil and Gas.
“It is impossible to take a call on the market. There are structural fears in the US financial markets that have medium-term ramifications for all markets,” said Phani Sekhar, fund manager, Angel Broking.
Traders seemed worried over the fallout of foreign funds selling shares to cover their losses in other markets. “The news about funds selling $4.5 billion worth of securities in four straight sessions in Taiwan and talk of US brokerages asking for more margins from their investors are causes for concern,” said a Bombay Stock Exchange member. Foreign funds bought equities worth a net Rs 5,891 crore securities in July, almost half of their total net investment this year.
“The immediate future depends on the outcome of the global market, which is beyond anybody's control. One must adopt absolute caution and should stay on the sidelines for things to get clear," an analyst warned investors in a note on Wednesday.
So far in the year, investors were seen rushing in to buy after each correction, thus causing steeper rises in the market. The markets need some time to consolidate after corrections to gather strength and then run up on fresh legs.