The Sensex crashed 615 points on Wednesday to close at 14,935. There may be more pain in store in the next few days.
Analysts felt that the markets are showing signs of further weakness amid jitters about the credit crunch in the US. Many felt that the Sensex may get support at 14,588 points, but the index could even touch 14,300 if that level is breached.
The key issue is the speed of the change. If the market witnesses a sharp gain or loss, it reflects weakness. “However, if markets start consolidating at current levels, the chances of a reversal of the trend are much stronger,” said Gurudutta Dhanokar, a technical analyst at Almodz Global Securities.
Another problem area is the margin call, the percentage of money deposited with the stock exchange for buying derivatives. Buyers will thus have to put up more money to stay invested in most stocks and futures.
In the past week, foreign funds have pulled out $4.5 billion (Rs 18,000 crore) from Taiwan. In India, the pullout has not been as drastic: funds sold $350 million (Rs 1,400 crore) worth of stocks. However, hedge funds and foreign institutional investors coordinate positions across markets to average out losses and India will not be an exception. Funds may book profits here to reduce losses elsewhere.