Sensex sees sharpest fall and rise in a day
It was a bungee jump on Wednesday, with the 30-share Sensex of the BSE registering both its steepest fall and highest rebound in a single day. The previous night?s proposal by market regulator Sebi to clamp down on participatory notes (PNs) to restrict foreign inflows resulted in the Sensex dropping a precipitous 1,743.96 points, or 9.15%.
After opening the day more than 1,000 points down at 18,037.90 points in early morning trades, it slipped another 730 points in the blink of an eye, prompting the exchange to apply the index-wide circuit-breaker and halt trading for an hour.
However, with clarity emerging on Sebi?s proposals from both its chairman, M Damodaran, as well as finance minister P Chidambaram, the market reversed its trend to witness its highest-ever, single-day recovery of more than 1,500 points, to touch an intra-day high of 18,841.29 points before closing at 18,715.82 points, down 336.04 points or 1.76%.
The broader S&P CNX Nifty of the NSE closed the day at 5,559.30 points, losing 108.75 points or 1.92%, after tanking by more than 500 points initially to touch an intra-day low of 5,143.75 points.
Sebi clarified that there was no proposed ban on renewing overseas derivatives instrument (ODI) contracts expiring this month or in the following months, provided the renewal did not extend beyond 18 months. Meanwhile, finance minister P Chidambaram also said that the government is not in favour of banning PNs and that only a cap had been placed on the amount of money coming through PNs.
Vinnie Vyas, CEO, Crossover Advisors, said, ?Uncertainty still remains over how these ODIs are going to be unwound. This will have wider ramifications and the market could be highly volatile in coming days.?
However, former Sebi executive director Pratip Kar was more optimistic about future FII inflows. He said, “India?s growth story will continue to unfold, so genuine FII flows will always come in.?
This is the third instance in last three years that stock exchanges were forced to halt trading for an hour after a free-fall triggered the 10% circuit-breaker. The first was on May 17, 2004, when it became clear that the Congress would form a new government with Left support. On May 22, 2006, trading had to be halted following a controversial taxation circular.
On Wednesday, the market breadth was very weak, with 1,757 stocks on the BSE ending in the red, compared to 922 stocks that advanced. Among the Sensex pack, 25 stocks declined while five advanced. Almost all BSE sectoral indices ended the day in the red. Only the BSE IT index bucked the trend and ended at 4,676.49 points, gaining 47.40 points.
FIIs were net sellers worth over Rs 2,000 crore on Wednesday in the cash market while they were net sellers worth Rs 3,850 crore in index futures. In individual stock futures, they were net sellers to the tune of Rs 840 crore.
