Stocks tumble below Black Monday lows

‘‘Most investors are still sceptical and are staying away in the sidelines waiting for the market to stabilise,’’ said Satish Menon, COO of Geojit Financial Services.

All the Sensex stocks closed below their black Monday lows when the market crashed more than 1,000 points while more than a third of the Sensex stocks have closed lower than the lows of that fateful day, signaling an all round weakness in frontline stocks.

Unless there’s a strong surge of liquidity into the markets, frontline stocks could continue to weaken, say analysts. Trading volumes too have plunged.

Worst hit were stocks in the mid and small-cap segment as players were unwinding their positions even as margin requirements still continue to weigh heavily on the market. Both the BSE Mid-cap and Small-cap Indices lost heavily and were down 6.25 and 6.9% respectively to 4,319.2 and 5,256.1.

The market breadth was extremely weak as over 94% stocks were in the red. Stocks in the real estate space, a favoured segment not too long ago, took some of the hardest pounding as most of them were locked down in the lower circuit.

PSU stocks too lost heavily as the BSE’s PSU index closed 5.6% lower to close at 4685.6. Selling pressure across emerging markets continues to bog the Indian market but among the main reasons for the sell-off has been rising interest rates across major economies which is squeezing out liquidity as investors are shifting from highly volatile and riskier assets such as equities into the safety of bonds.

The buzz on the street is markets could continue to weaken as liquidity flows into the market has dried up. Foreign funds are shying away from Indian stocks and amid cases of redemption in mutual funds and PMS schemes run by brokerage houses being reported.

‘‘There has been few redemptions, but most investors are anxious about the market,’’ says a broker. For now that is found wanting though foreign investors have been net buyers. But unless strong liquidity flows back into the market, its going to be tough market says a broker.

The market could drop further in the short term as redemption pressure builds up on domestic mutual funds, which were heavy buyers in May, dealers said.

Stock markets across the world have fallen in recent sessions on market speculation that the US central bank would raise interest rates at the end of June, a move that could prompt foreign funds to pull out of emerging markets. On Wednesday, Tokyo shares ended 1.9% lower, Australia’s S&P/ASX 200 lost 0.2%, and Korea’s benchmark KOSPI shed 2.7%.

Mutual funds have kept their cash ready in order to repay investors who want to get out of the markets.

Dealers said domestic mutual funds, which bought stocks worth $1.7 billion in May, were facing redemption pressures from edgy investors. The funds sold shares worth $115 million in the two sessions to Monday.

The benchmark BSE index is down nearly 23% from an all-time peak of 12,671.11 set on May 11 as foreign funds dumped shares worth about $2.43 billion since mid-May. The 50-issue NSE index fell 2.22% to 2,872.20 points.