Monday, March 9, 2009

Market Meltdown in Early March

The markets slipped to over three-year lows this week, in tandem with world markets, which also tumbled to multi-year lows. The Sensex, which began the week with a negative gap of 129 points at 8,763, hit a low of 8,047. However, the index recovered partially and closed the week with a loss of 6.4 per cent (566 points) at 8,326. With the stock market buckling under negative global cues* and heavy selling by foreign investors, shares of over 160 firms, including Reliance Communications, Ranbaxy Labs and Suzlon Energy, plunged to their all-time lows. FIIs have sold as much as Rs 458.30 crore in Indian equities in the first week of March and their total sell off in 2009 amounting to Rs 2,114.60 crore. Trading volumes in index options have been steadily rising, as a result of investors seeking a hedge against volatility in a declining market. In December, the average daily contracts in index options (NIFTY, MINIFTY AND BANKNIFTY options) on NSE was 10,07561. This rose in January to 10,60,784 and in February to 11,30,273. The first few trading days of March have seen index option volumes rise on a daily basis; on Friday index options reached a record 16,77,878 contracts on the exchange. The open interest positions in Nifty options are also high, indicating a bearish view on the Nifty according to brokers. *The number of US bank failures is mounting as 17 lenders went bankrupt so far this year amid the deepening recession in the world's largest economy; in February 2008, 10 banks were closed down, making it the highest for any month since 2000. A total of six banks had failed in January and one in March. The US unemployment rate has moved to a record high of 8.1% in February.

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