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Sensex bottom knocked off

Plunges 1111 points, recovers some, closes 434 points down.

March 22, 2006

Indian stock markets witnessed their worst-ever collapse and partial recovery on Monday, when the 30-share benchmark index Sensex tanked 1111.70 points, before recovering some losses. At the end of the day, the Sensex was down 434 points compared to the previous day's close.

The extreme reaction in the market is believed to be a consequence of a CBDT circular which classified some FIIs as traders, the global commodity meltdown and the US Fed reserve hiking rates by 25 basis points. There are also signals that a hedge fund pullout may have aggravated the already-bleak situation.

The lowest point for the Sensex on Monday was 9827 points. At this point, (11.56 AM) when the Sensex hit the lower circuit filter of 10%, trading was shut down shut down for an hour to cool down markets. When trading resumed at 12.56, the markets opened at 11300 points, but lost further to 10503 points. However, when the trading resumed after the suspension, domestic financial institutions like LIC bought at lower levels, helping the markets rise.

Two years back, trading was suspended in a similar scene, when the Sensex tumbled over 800 points.

The broad-based S&P CNX Nifty too closed in the red, with the index losing 143 points over its Friday close.

Though there were fears of a liquidity crunch, finance minister P Chidambaram sought to dispel them, saying banks have been directed to provide margin money. The Securities and Exchange Board of India (Sebi) chairman said that the systems are functioning well, while Chidambaram assured retail investors that there is nothing to worry, and that they should stay invested. He also added that FIIs are here for the long term.

Meanhile, Citigroup went on record saying that Indian markets will turn attractive again at 8,500-levels, when it will start buying again. Some other brokerages have advised investors to make the best use of the crash and start buying.


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