During the past few months, Indian market continued to create history by crossing one milestones after other. In last few days, the Indian market again created history, but surely not in way the investors wished to. During January 14-22 period, the Indian benchmark index, Sensex crashed 4,100 points thus incurring a loss of Rs 16,000 billion for the investors.
Reasons for the meltdown in the Indian market ranged from the correction which was expected in Indian market to obscure superstition like a placement of bronze bull in front of stock exchange.
The bearish movement in the market may largely be due to following reasons:
a) When Nifty futures turned into discount, it created a lot of short positions.
b) FII Selling: During the week ended Jan. 25, 2008, FII`s was in the negative in each of the five trading days, selling equities worth a whopping USD 2.451 billion.
c) Weak Global cues: All major indexes over the world were in negative on speculation the world`s biggest market was heading for a recession.
However, if one looks at the reason closely, it may observe that almost all of the above reasons were also present when the sub prime mortgage crises hit the U.S market. Despite the presence of above reasons the Indian market defied all rules of the game and staunchly moved ahead. The major difference between the sub prime mortgage crises and now is the inflow of cash into the market by the Indian investors.
During the sub prime mortgage crises, when the FIIs went on a selling spree, the Indian retail investors infused money in the Indian market and helped it regain composure. The same assistance by the Indian investors was sorely missed by the Indian market in the past few days. A major part for the lack of liquidity may be credited to the launch of two new IPO`s viz. Reliance Power and Future Capital.
The IPO of Reliance Power created history on lot of fronts such as biggest ever size of Rs 117 billion issue size and a record 4.7 million applications and highest demand of shares. The IPO blocked lot of cash of Indian retail investors, who make up 60% of India`s trading volume. Consequently, as the investors couldn`t meet margin calls on their futures contracts, the brokers were forced to sell in large numbers.
