Correction on, Sensex falls another 91 points

There was a small recovery again but the benchmark index finally ended with a loss of 91.45 points, or 1.42 per cent, at 6,367.39. From its lifetime high of 6,696.31 touched on Tuesday, the benchmark index has till now shed 328.92 points.

‘‘The markets are in a state of panic,’’ said Pawan Dharnidharka. ‘‘I am expecting it to stabilise in a day or two,’’ he added. The market was also agog with rumours that a leading big bull has gone bust.

The broader NSE S&P CNX Nifty index shed 33.85 points, or 1.67 per cent, to end at 1,998.35, coming off its day’s high of 2,035.65, yet slightly above its day’s low of 1,984.25. With the tide turning, experts have advised investors to be cautious. “Short-term investors need to be careful. Long-term investors don’t need to worry about this situation at all,” said Ved Prakash Chaturvedi, CIO, Tata Mutual Fund.

The market displayed extreme volatility amid alternate bouts of selling and buying. ‘‘The stocks tanked in morning trades but later it recovered. It fell again as the rumours started filtering in,’’ said a BSE broker. ‘‘After the correction, downside risk appears to be limited. Nevertheless, it is advisable to adopt a cautious approach,’’ he advised.

While operators and retail investors sold, selling also came from foreign funds after minutes of the Federal Reserve’s December meeting noted rising concern about the threat of inflation, sparking fears of faster hikes in interest rates and a stronger dollar. This has prompted hedge funds to cut exposure in global commodities markets and emerging markets including India.

Emerging markets have been hit after minutes released from the US Federal Reserve’s December meeting fueled concerns that US interest rates may have to rise faster than previously expected, to contain inflation. Following a sharp fall in stock prices, stop-loss limits and margin calls were triggered, thereby worsening the fall. Traders often keep stop-loss positions, placing automatic ‘sell’ orders when prices dip below a particular level.

Wednesday’s setback had raised concerns that traders would have to cough up additional margins in the futures & options (F&O) segment. Huge F&O positions are dangerous for the market at this juncture. Among the major losers, MTNL was down 7 per cent to Rs 145 and ended lower on account of selling pressure at higher levels after the Telecom Regulatory Authority of India (Trai) cut the access deficit charge (ADC) on local and international calls, in a bid to reduce call rates further.