Stocks whipped, Sensex loses 222 pts

If that was not enough reason, the market was unnerved by reports about an income-tax raid on a leading BSE broker. Thisbroker, who is a major speculator in several leading stocks, is believed to be responsible for the speculative excesses in the recent months. “The bubble created by this broker is enough to pull down the market,” said an operator.

Foreign funds also followed suit and unloaded heavily. Sensex opened marginally down at 5513.04 and exhibited erratic movements till the mid-session. It later nosedived to a low of 5221.28 before closing at 5296.30 with a sizeable loss of 222.09 points or 4.02 per cent compared to the yesterday’s close of 5518.39. The market had hit an all-time high of 5,668.28 on Monday. The 50-share National Stock Exchange index ended 3.87 per cent or 63.15 points down at 1,569.80.

This is the single-session biggest fall since April 17, 1999 when the Sensex had crashed by 245.93 points. Infosys has been the target of much of the recent speculation and on Tuesday, for the fourth time out of the last five trading days, the share hit its eight per cent circuit-breaker.

“Heavy outstandingpositions are weighing on the index,” said a dealer. Total net outstanding positions on the BSE stood at Rs 3,707 crore on Monday compared to Rs 3,000 crore a month ago. Infosys accounts for around 15 per cent of the weighting inthe 30-share BSE Sensex. Other software shares also bore the brunt of heavy hammering. The closing prices for other stocks which unveiled results on Tuesday were: Polaris Software Rs 146.85 down at Rs 1,746.05 and Satyam Computer by Rs 115.10 to Rs 2,352. HCL Technologies made its debut on the BSE and closed at Rs 1,576.70 against an issue price of Rs 580.

Selling by domestic funds in economy related stocks and index based cyclical stocks, which were in demand when infotech fell out of favour last week, added to the overall weakness, dealer at a foreign brokerage house said. Reliance, Grasim and Hindalco lost heavily. FIIs also joined the selling spree unleashed by operators. Data released by India’s market regulator showed foreign funds were net sellers to the tune of $80.1million in January up to January 7, as against $358.9 net purchases in December 1999.

The sentiment turned so bearish that operators virtually ignored the bullish trend on Nasdaq. A section of the market feels the market was overheated and a correction was long overdue. "It is rising too fast, too high," NSE managing director RH Patil was quoted as saying. "It is not good for the market, it should rise in a steady fashion… a sharp rise can lead to a sharp fall. Information technology sector is extremely overheated," he warned. Patil also said the market had become volatile, responding to movements in overseas markets.

Indian share prices have recently tracked movements in overseas stock markets, particularly the US markets. "If the US market correction does not happen then our market may remain stable," Patil had said.

At the current level, despite the runaway losses in the technology stock, brokers are still not comfortable. Reflecting the mood, even those IT companies which declared good resultswere down.