Brokers observed that Hedge Funds have a time of 30 days in which to invest in a market and move out. "FIIs started picking up certain sectors which saw an upsurge in the hope that as the markets surge, retail investors would join and at that time, these FIIs can book profits and move out. But this has not happened. The discerning Indian investor has matured and did not provide an exit route to these FIIs. This saw the markets correcting themselves today", said the vice president, Khandwala Securities, VVLN Sastry.

"The FIIs propelled markets to generate interest in the retail investor. And at all points in the rally,domestic institutions, local operators and investors booked profits, getting out of the commodity, cyclical and infrastructure stocks which they had been saddled with for a long time. With the FII inflow tapering off, commodity stocks have taken a beating. There is a lot of volatility in the market and one should wait and watch", said managing director, KBS Capital management, Tushar Shah.

FIIs planned to make profit at the higher level, but the question is, who will provide the exit route to these FIIs as domestic institutions, local operators, mutual funds have been sellers and booking profits at all levels in the current rally, said a broker.

The BSE Sensex initially opened at 4,110.25, confronted robust resistance and dropped to the intra-day low of 4,006.00 before closing at 4,015.75 as against previous day's closing of 4,079.45, netting a fall of 63.70 points. Pivotals reacted sharply on bull liquidation by foreign funds for squaring up positions at the NSE also and reduced the Nifty index by 21.05points at the close.

The S&P CNX Nifty opened higher at 1176.95, later touched a low of 1139.10 and closed at 1145.85, showing a net loss of 21.05 from the previous close of 1166.90. Trading on NSE had to be stopped at 10:15 am due to brokers not being able to log in using the new Y2K complaint software. The market was open for an additional 45 minutes to compensate for the lost time. After the BSE closed, NSE witnessed quite an amount of weakness with the exchange losing yesterday's gains.

The rally has subsided as FIIs are pumping in lesser money compared to last week of over Rs 200 crore. "This shows that the view of the FIIs is to hold the positions. This can be seen from two things that the Federal Bank has not increased interest rates, but has an inclination for the same. In the SE Asian markets, the current rally in cyclicals has subsided and the ripple effect can be seen here. But FIIs have not yet turned sellers and the market went down today mainly on squaring up activities, being the last dayon the BSE", said Jignesh Shah, AVP, Research, Triumph International Finance.

AVP of Apple Mutual Fund, Malay Sameer said that after making a high of 1200 the index had started showing weakness with the relative strength index in an overbought position. "Foreign buyers have shown signs of slowing down and local institutions are looking at booking profits at current levels. The market may retrace by 33 per cent and may test a level of 1100 in the short term", said Sameer.

Refinery stocks were hammered further and so were all the commodity and cyclical stocks. The fall was led by marlket leader SBI, which saw a lot of squaring up and fell to a low of Rs 252, before closing at Rs 264. Capital International is rumoured to have sold a lot of Satyam Computers today and Templeton Mutual Fund is rumoured to have sold both HPCL and BPCL. "Index-based scrips like HLL, ITC, Glaxo and NIIT were in demand and scored impressive gains. Andhra Valley, Tata Power, Hotel Leela, Indian Rayon, Sesa Goa and Tata Hydro hitthe lower circuit.

"The correction was long overdue. Looking at today's trends, the badla rates should be high this week", said Arun Singh, analyst at Dalal and Broacha.

Says S Ramakrishnan, VP, retail broking, Motilal Oswal Securities: "The market undercurrent is still bullish and one should buy at all declines. With today's rally, investors will understand the value of defensives like software and pharma". The day was marked by selling in Telco and Reliance. HPCL and BPCL were both weak where FIIs booked profits.