What was going up, up & away, comes down

Among the various reasons being put forward to explain what seemed liked Black Wednesday at one stage include a stronger dollar (the gain is marginal), falling stock markets in the US and Asia (the Indian market dipped more sharply), and fears that an interest rate hike by the US Fed would impact foreign fund inflows (S&P’s recent warning on Indian growth didn’t help matters).

But most experts called the crash a overdue correction. “Today’s fall was a technical correction, and a long overdue one. There was a build-up of selling pressure for some time. I don’t know at this point who was selling… it could be anyone,” said Ramdeo Agarwal, joint managing director, Motilal Oswal Securities.

After the overnight fall in the US markets, Indian markets opened on a weak note and the selling pressure intensified once foreign funds — including hedge funds — started dumping shares. The fall was across the board.

PSU, metal, infotech, auto and bank shares were pummelled by investors.

With local operator and funds soon joining the sellers bandwagon, the Sensex plunged by as much as 313.40 points to a low of 6,337.61 in the afternoon. However, some funds and institutions resorted to bargain buying in the closing stages. The Sensex ended the day at 6458.84 as against yesterday’s close of 6651.01, a net loss of 192.17 points or 2.89 per cent.

According to market circles, after the steep decline in stock prices, stop-loss limits were triggered, thereby worsening the fall in afternoon trades. Traders often keep stop-loss positions, placing automatic ‘sell’ orders when prices dip below a particular level.

Said K Vijayan, CEO, JM Mutual Fund, “There were two bits of news that could have affected the market sentiments: the sharp rise of dollar against the rupee and secondly, S&P’s comment on Indian economy.”

The rupee declined against the US currency on renewed all-round dollar demand. The rupee closed at 43.8250/8350 per dollar, lower from Tuesday’s close of 43.52/54 at the inter-bank foreign exchange market.