The historic fall witnessed by the domestic equity indices on Monday on the back of weak global cues was mainly accentuated by margin calls by brokerages, unwinding of long positions in individual stock futures and triggering of stop losses in the derivative segment.
As a result the domestic equity market saw a freefall with Nifty closing the day at 5,208.80 points, losing 496.5 points or 8.70%. Nifty January futures closed the day at 5,203 points with a discount of 5.80 points seeing an increase of 3.60 crore shares in open interest (OI) with majority of the positions on the short side. The OI position in the Nifty January futures currently stood at 4.33 crore shares.
Siddarth Bhamre, derivatives analyst, Angel Stock Broking said, “It was clearly a trigger of long unwinding of positions in the derivatives segment due to the margin calls that resulted in a fall of this magnitude. At the same time many investors who have put their stop losses of Nifty futures at 5,500 levels were also triggered, accentuating the fall further. Unwinding of long positions was more aggressive in small- and mid-cap spaces. And those investors who could not pay in cash for their losses incurred due to unwinding resorted to cash-based selling in frontline stocks that led to a broad-based selling in the market.?
As a result CNX mid cap index fell by 994.4 points or 11.88% to close at 7,373.65 points while CNX 100 index lost 9.26% or 519.5 points to close the day at 5,093.60 points.
The Implied Volatility (IV) in Nifty options, ie, investor’s expectation of markets future volatility has increased to around 50%, indicating that the mood in the market is still cautious.
Market experts, without ruling out the possibility of a rise of 100 to 200 points in Nifty, say that with global factors still remaining subdued, the market may not witness a strong bounce-back as in previous occasions and hence advise investors to square off their long positions at every rise.
Technical glitch adds to market panic
At around 2:30 pm, when the market was witnessing a sustained slide, more confusion set in. On the BSE, trading witnessed a technical glitch and trading seemed to have halted for a couple of minutes. This was perceived as an indicator of a market-wide trading halt to be triggered soon and resulted in intensified selling. The exchange sources said, BSE has already taken up this matter seriously. Its information technology division has undertaken an internal investigation into the matter. The report is expected soon, based on which, the exchange will take suitable action.