Sell-off continues, Sensex down 4%

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

In spite of 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.

‘‘It was not just margins calls. As continuation of yesterday’s sell-off, there was a rush among investors to book profit,’’ said Hemang Raja, managing director at IL&FS Investsmart Ltd. ‘‘We expect the market to find some support around 10,500 levels’’. Margin calls are normally triggered when markets show hyper volatility or witness sharp slides.

Besides, fourth quarter results announced by some corporates including State Bank of India during the day too fell short of market expectations. The situation was further compounded by the demand for long-term capital gains tax raised by ruling UPA’s ally CPI(M). There were no comments from either market regulator Sebi or the finance minister on the likely reasons for a steep fall today.

A clarification from the Finance Minister P. Chidambaram that no FIIs have been assessed as traders came as a whiff of fresh air for the benchmark index that was gasping for breath.

Sensex opened with an upward gap of 159 points, surged to hit a high of 11,697.11, as buying continued. However, minutes after hitting the high, it tanked lower. The benchmark index had already wavered 693 points in the first hour of trade, indicating a high degree of volatility.

However, analysts feel the onslaught of bears would continue to fuel selling pressure in the next few trading sessions. ‘‘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.

For the second consecutive day, all sectoral indices registered three to five per cent losses. The BSE metal index bore the brunt of selling pressure, triggered by sharp declines in commodity prices all over the world.

The BSE metal index dipped by another 495.01 points, or 5.38 per cent, to end the day at 8,704.50.