Sensex crashes

Our Banking Bureau
06 January 2005

New Delhi: The sensex yesterday witnessed an intra day fall of 316 points, which left market men baffled. The fall was triggered by domestic and international factors but at the end of the day it recovered to close 192 points lower than the previous day.

In addition, metal prices, led by aluminium witnessed a meltdown in the world commodity prices.

Standard and Poor's statement expressing concerns about India'a increasing fiscal deficit also added to the nervousness.

Inflows from foreign institutional investors (FIIs) showed signs of lagging with expectations that US interest rates could get hiked, leading to the dollar getting strengthened. A stronger dollar would result in FIIs having to realign their investment strategies. It was with all these concerns that the market went into trade at the opening bell. First, metal stocks, which have had quite a run up in the last several weeks, witnessed panic selling. This cascaded into other stocks and a market-wide slide began. By 12:30 p.m., the sensex had shed over 127 points. Even before market participants could make sense of what was happening, the index slipped further into the red.

Open positions in the forward markets were rather high. So the sudden drop of 50-100 points forced a lot of investors to square up on their positions and several `stop-loss' levels were breached. This led the market to fall even further.

At about 1 p.m, the Sensex hovered at 6453, a loss of close to 200 points. Less than an hour later, the index touched its lowest point intra-day, 6,334.74, wiping out 316.27 points in a little over three hours of trade.