Spooked by margin calls and rumours of further regulatory action in cases relating to price rigging, the markets caved in on Wednesday with the Sensex crashing 454 points. The Nifty fell below the psychological 5,800-mark triggering stop losses and forcing brokers to liquidate stocks to ensure that clients? margins were adequate. While mid-caps were hammered out of shape, skittish investors rushed to offload blue-chips as they took risk off the table. After falling to 19,242.36, the Sensex has lost 8.4% from its lifetime high of 21,004.96, which it hit on November 5, 2010 during the muhurat trading session. While the Nifty mid-cap index plunged 4.17% on Thursday, the BSE small-cap index gave up nearly 6%.

Kotak Securities director S Narayan said, ?As far as mid-cap stocks are concerned, there is clearly a sense of panic and much of this has to do with the negative news in the past couple of weeks. At some point, the investors have decided to call it quits and those who have borrowed against shares have little choice.? ICICI Securities CEO & MD Madhabi Puri Buch said, ?Investors need to understand that mid-cap stocks are inherently more risky and vulnerable to price manipulation. Sometimes a strong correction is not unhealthy.?

Ambit Capital CEO Andrew Holland said, ?I suspect there has been some margin selling and at times like these, people have to sell everything they own. It?s also difficult to gauge people?s exposures.? Holland, however, believes the situation could also be looked positively. ?Unless you?re saying something?s terribly wrong, this throws up an opportunity to pick up some bargains because at some point the market will stabilise,? he said.

Foreign Institutional Investors (FIIs), who have invested a record $29 billion in equities so far this year, offloaded stocks worth $329 million on Wednesday and close to $300 million on Thursday, according to provisional data on the exchanges. The breadth in the market worsened on Thurday with losers outnumbering gainers by a wide margin of 6:1. The turnover in the cash segment on the NSE was Rs 17, 329 crore far higher than the six-month daily average of Rs 15,081 crore. The turnover in the derivatives segment was Rs 1.4 lakh crore compared with the six month daily average of Rs 1.12 lakh crore.

ICICI Prudential deputy MD Nilesh Shah said, ?The real concern is that the growth outlook over the medium term is somewhat cloudy given that interest rates are rising and liquidity is somewhat tight. Also, there are execution delays and inflation too isn?t really coming off.? Shah, however, points out that since the market is now not overvalued, there could be opportunities to buy at lower levels. ICICI?s Puri Buch too believes that since the country?s economic fundamentals are sound, this is a good time to buy large-caps since they are now less expensive.

Globally, there was a trend reversal. Nikkei rose to a seven-month high, up 0.4%, to 10,275.23, as a weaker yen against the dollar prompted solid buying and helped lift exporters’ shares. Hang Seng rose 0.34% and Kospi rose 1.87%. European shares hit a 26-month high in early trade on optimism that the US tax cuts would boost consumption.