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Sensex falls off 19th floor, plunges to 17th as US panic

Sensex records its biggest-ever drop of 1,408.35 pts as investors lose notional wealth worth Rs 6,63,975 cr, reports Vyas Mohan.Read our surfer responses
Hindustan Times | By Vyas Mohan, Mumbai
UPDATED ON JAN 22, 2008 12:47 AM IST

Bears went bull hunting on Dalal Street on Monday. As the global economy reacted to a potential US recession and foreign funds sold heavily, the Sensex recorded its biggest ever single-day drop of 1,408.35 points, and investors lost notional wealth worth Rs 6,63,975 crore.

Trading halted on the Bombay Stock Exchange for a few minutes as a circuit limit of 10 per cent got wrongly activated instead of the 15 per cent limit specified by regulators.

Prime Minister Manmohan Singh moved to cool the mood at the end of a heart-wrenching day. “Orderly growth of the capital market is a priority concern… Considering that fundamentals of our economy are elementarily strong, I am confident the market will grow in an orderly manner. I would like to assure the Indian public that sustained orderly growth for capital markets is a priority concern,” he said.

The Sensex lost 2,062 points intra-day to hit a low of 16,951, before recovering about one-third of what it lost to close at 17, 605.35, down 7.41 per cent. The National Stock Exchange Nifty lost 496.50 points or 8.70 per cent to close at 5208.80.

According to PTI, market capitalisation on the BSE was Rs 59,53,525.87 crore at the end of Monday’s trading, a mind-numbing drop of Rs 6,63,975 crore in just one trading session. Rs 5,21,310 crore in notional wealth was lost over five sessions last week.

Amid weak stock markets across the globe and heavy foreign institutional selling in the last four sessions (FIIs dumped Indian equities worth Rs 9,118 crore), panic gripped the funds-starved bourses for the third time in the last nine months and stock prices tumbled — triggering margin calls imposed on traders by brokers. The big-bang Rs 11,600-crore IPO of Reliance Power has attracted 74 times more than what it could absorb, siphoning off huge money from the markets.

A margin call is the requirement to cough up additional money to compensate for the decline in value of shares one has bought with borrowed money (broker’s money). With the indices opening lower and sliding rapidly, brokers were forced to sell their clients’ partly paid holdings as bourses demanded more margin money.

“There was a flurry of margin calls as stocks plummeted, which resulted in forced selling that aggravated the fall,” Dev Kapadia, chief dealer of Lalkar Securities, said.

The sub-prime factor, which played the villain in May 2007, triggered the crisis this time too.

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