Sell-Offs Hit Markets Hard

The higher decline we saw in the small-cap and mid-cap stocks earlier today has deepened to the extreme, causing a sudden drastic fall in the Indian markets with a plunge of more than 1% each in the Sensex and Nifty. The Sensex closed 206.23 points lower, down 1.22% at 16639.82 while the Nifty closed 66.6 points lower, 1.30% down at 5043.

The Asian markets that opened flat, ended flat or negative except for the Nikkei, which saw gains to the extent of 0.92%. Investors looked for bargains after the recent losses witnessed during this week. The Nikkei 225 traded positive for the first time this week after declining for five consecutive trading sessions. Moreover, better results from Nintendo and Fanuc provided some support to the markets.

The European markets, on the other hand, are trading significantly lower on the back of disappointing corporate earnings. Amid yesterday's mixed cues on a depressing economy and the positive sentiment from the ECB Council Minister, the markets were aimless with no directional bias. The FTSE, DAX and CAC are trading lower by 0.22%, 0.98% and 0.24% today.

On the domestic front, the sudden downfall in the markets is a result of some heavy selling of pledged shares by NBFCs. Some small-cap and mid-cap companies had pledged their holdings to finance companies in order to get funding, to the extent of 40%-90%. On failing to produce margins due to the falling stock prices, NBFCs were forced to sell these pledged shares to recover their dues.

We had seen hints of this sell off in the morning, with the small-cap and mid-cap indices lower by over 1%. They fell heavily towards the end of today’s trading session, resulting in a decline of 2.07% in both, the small-cap and the mid-cap indices. Individual stocks have seen decline up to the extent of over 30% for some of the company stocks. Among these, Tulip Telecom declined by 25.98%, Pipavav Defence by 19.96% and Everonn Education by 13.96%, among other heavy losses.

All of the sectors saw a decline, with the maximum in Realty, which dropped by 3.07%. The sectoral indices were lower in the range of 0.18%-3.07%. This shadow on the markets is expected to lengthen, and we expect them to open negative tomorrow as well.