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Avalanche at markets, Sensex below 11,000

Markets continued to bleed for the second successive day, losing another 452 pts on top of Thursday's mayhem.

india Updated: May 19, 2006 17:53 IST

Stock markets continued to bleed for the second successive day on Friday, losing another 452 points on top of Thursday's mayhem as investors lost at least Rs 300,000 crore due to panic selling since Thursday.

After a plunge of 826 points, the biggest fall in the history of the market on Thursday, the market vacillated from one end to the other but closed the day lower with the Sensex shedding about 1,300 points (11 per cent) in two days, virtually showing no positive effect in the wake of Finance Minister P Chidambaram's clarification on taxing FIIs.

The situation was further compounded by the demand for long term capital gains raised by ruling UPA's ally CPI(M).

"There was a general nervous feeling in the market and there were hardly any worthwhile buying interest including by domestic institutions," a leading broker said.

There were no comments from either market regulator SEBI or the Finance Ministry on the likely reasons for a steep fall today although analysts feel that the onslaught of bears would continue to fuel selling pressure in the next few trading sessions.

During the day's trading, BSE Sensex, the benchmark index, fluctuated by nearly 900 points but closed lower by 452.85 points at 10,938.61, as panicky medium investors joined funds in selling blue chip stocks including Reliance, ONGC and Infosys.

The wide-based National Stock Exchange index Nifty also dropped by 142.00 points at 3246.90.

The meltdown was also fuelled by margin calls, the margin money charged by the bourses from traders, which sparked panic selling by medium investors.

Friday's swing of 898.10 points is the largest in the BSE history. The Sensex swung by 833.53 points on Thursday.

In extreme volatility, the market attempted recovery on several occasions during the day but necessary support was not forthcoming in the light of fears of more FII withdrawals.

Foreign Institutional Investors (FIIs) pulled out more than Rs 2,500 crore in equity in the first four days of week. They pumped in about Rs 1,359 crore in the futures in three days after a withdrawal of Rs 1,084 crore on May 15.

Domestic funds made purchases of Rs 1,322 crore in the initial three days of the week.

The market had a mild relief from the government's clarification that the Central Board of Direct Taxes' (CBDT) note was not meant to tax the FIIs.

Commenting on stocks meltdown, Sajiv Bhambri of Hitech Securities said the major factor to trigger a cascading effect on sinking market is margin calls from market intermediates, mainly brokers and banks.

Bhambri said margin calls are normally triggered when markets show hyper volatility or witness sharp slides.

Fourth quarter results announced by a few corporates including State Bank of India during the day too fell short of the market expectations.

The market is expected to withness a high level of volatility till the expiry of May contract in derivatives on Thursday as margin calls are generally triggered in Futures and Options segment as brokers build up huge speculative positions by paying upfront margins, investors said.

First Published: May 19, 2006 10:26 IST