Mumbai: After three days of sharp decline and volatility, Tuesday’s market provided a welcome break for investors. When trading opened in the morning, there was sharp volatility as the sensex dropped by nearly 300 points. That’s when local institutions stepped up their buying to cushion the recent crash that had shaved nearly 17% off the sensex. As a result, the index rallied with the afternoon trade to close 341 points higher at 10,823.
Meanwhile, during the day, the finance minister also made a statement in the Rajya Sabha to assure members there that the government was doing its bit to restore confidence among investors and bring back order in the marketplace.
P Chidambaram attributed the sharp volatility largely to a technical correction in the domestic market, a sense of uncertainty across global markets, and the inability of some large, highly leveraged traders to meet their obligations. He said the banks were providing ample liquidity to meet the margin obligations of these highly leveraged traders. “Therefore, in view of the fact that calm has returned to the market my advice to genuine long-term investors is to stay invested,’’ Chidambaram said.
Market players said that to some extent these steps had assured investors and a relative calm had been restored. Compared to Monday’s 1,315 point swing in the sensex, it gyrated just 674 points on Tuesday. Against a 17.3% loss in the three previous sessions it gained 3.3% during the day. And compared to a Rs 5.3 lakh crore loss in investors’ wealth in three earlier sessions, they were now richer by nearly Rs 1 lakh crore.
The ferocity of the crash in the last few days, however, has made market players extremely cautious and most are following a waitand-watch policy. “Should the index (sensex) go up by another 500 points, the strength of the market will be put to test,’’ said Manish Kanchan, CEO, Ambit Capital. Any fresh buying or renewed selling at that point would determine the robustness of the index, he said.
Behind Tuesday’s seemingly government-directed buying by Life Insurance Corporation, select state-run banks and mutual funds, there are signs that the day’s trading could just be a breather for the crashing sensex, market players said. On Tuesday, while domestic institutions were buying, foreign funds were heavy sellers, clocking a net outflow figure of over Rs 1,100 crore. Even retail investors are selling at every rise in stock prices. “The undertone is still very weak. Selling is seen at every small rally,’’ said the head of a local brokerage.
Another reason for the market’s pessimism with the day’s recovery was the comparatively low turnover. Compared to the average daily volumes of about Rs 4,200 crore on the BSE, it was just Rs 2,800 crore. What this means is that large players weren’t willing to buy and hence the turnover was low. Unless the index rises were accompanied by higher turnover, the recovery would not continue for long, a dealer with a local brokerage said.
STORM AND AFTER
- LIC continued its buying spree, supported by mutual funds and select banks, cushioning any fall during morning trades, foreign funds were big sellers.
- By the end of the day, they were net sellers to the tune of Rs 1,132 cr.
- Speculative buying pushed up sensex towards the end of session
- Inside parliament, the FM once again assured members that all steps were being taken to reduce volatility
