Small stocks crumble during the week as correction sets in the markets

Rex Mathew
24 September 2005

This week has been so dramatic for the stock markets that most of the participants will not forget the week's events easily. Markets have been on a relentless bull run for the last few weeks without any pause or correction. In fact, the markets had not seen any significant correction ever since the Sensex crossed the 7500 mark. Though most analysts have been predicting a correction all this while, the indices continued to defy gravity. The last 500 points on the Sensex was gained in just over 10 days or so.

The much awaited correction happened this week, but it was not a natural correction. The decline was induced by some initial steps taken by the market regulator and the exchanges to rein in the meteoric rise in small stocks listed only on the BSE. These steps led to wild rumours, which were picked up by the media with glee and caused a panic reaction among traders.

The markets opened the week in familiar fashion with the Sensex crossing 8400 on Monday and 8500 by Tuesday. The drama started on Wednesday as frontline indices crashed in mid-morning trades and lost close to 3 per cent by noon. The Sensex lost more than 200 points only to recover all of it before closing on the same day.

On Thursday, the financial media was full of reports about regulatory action on the broking community. Names of leading broking companies and intermediaries were being freely mentioned. Reports of income tax raids on select stock brokers in smaller towns increased the panic among traders and the indices crashed. There was no recovery from that fall and the Sensex and Nifty closed with losses of close to 3 per cent each.

On Friday, the markets turned volatile as traders remained uncertain about market direction. The impending derivatives settlement next week also added to the uncertainty. After declining close to a per cent in mid-morning trades, the indices recovered and closed the day on a flat note.

The Sensex lost 159 points or close to 2 per cent during the week and the Nifty shed 74 points or close to 3 per cent over the week.

Mid-caps were in a worse situation during the week as most of the came tumbling down from recent highs on Wednesday and Thursday. Like the large caps, smaller stocks also had started the week on a strong note with the index going well past the 3900 mark for the first time. The fall in the small and micro-caps listed on the BSE was worse as many of them continued their decline even on Friday when the mid-caps staged a recovery. The CNX Mid-Cap 100 lost 202 points or more than 5 per cent during the week.