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Sensex recovers after 8k breach

Markets Bureau
Posted: Oct 28, 2008 at 0004 hrs IST
Updated: Oct 28, 2008 at 0004 hrs IST

The BSE Sensex dramatically bounced back after plunging 1,000 points to pierce the 8,000-mark
intra-day on Monday, opening the week in a vein that threatened to mirror Friday’s freefall. The
recovery on Diwali eve was thanks to sustained short covering at lower levels that saw realty,
tech, IT and oil & gas recover losses.

One of the main reasons for this huge swing was the upcoming expiry of derivative contracts for
the October 2008 series on Wednesday. Anita Gandhi, head of institutional business at Arihant
Capital Market, said, “Indian bourses bounced back as investors booked profits in short positions
ahead of the F&O (futures & options) expiry and there was some buying by insurance
companies.” Overall, FIIs remained net sellers on Monday to the extent of Rs 1,178 crore.

By the time markets slipped to 7,750 levels in the afternoon, a gap of 5,250 points had opened up
from a month ago when bearish investors had taken positions in the F&O market. Since then,
there has been a 35% fall in the Sensex.

“This means bears who went short were sitting on huge piles of profit. Assuming a 10% F&O
margin requirement, that would translate to a 350% return on their original investment. That’s a
huge profit in just 20 trading sessions,” said Jagannadham T, equity head at SMC Capital.

Investors liquidated their positions in the afternoon by buying shares for settlement, as Indian
markets settle each monthly contract on the last Thursday. Stocks that were beaten down by short
sales were seen to be in demand. Realty majors Indiabulls Real Estate and Unitech, which have
seen severe price erosion, rose 15.07% and 41.86%, respectively. RIL, Bharti and RComm were
the other top gainers.

The worst performers of the day were constituents of the consumer durables index and auto
index. Dealers say that there was a 37% rollover recorded marketwide, and Nifty rollovers stood
at 45% from the October 2008 series to November 2007, by last Friday.

These depict the high level of uncertainty and the chances of a further market fall are not ruled
out. In fact, the India volatility index touched its highest level of 67.65%, indicating that the
market is in a severe state of panic.

Earlier, weak cues from Asian markets set the morning’s tone. Japan’s Nikkei tanked 6.2%, its
lowest since 1982, while Hong Kong’s Hang Seng registered its steepest drop since 1997.
However, the Sensex ended the day with only a 191.51-point, or 2.20% loss, to close at 8,509.56
points. The broader S&P CNX Nifty of the NSE was down 59.80 points, or 2.31%, to end the
day at 2,524.20 points.

Overall breath remained negative as out of 2,577 stocks traded on BSE, only 515 stocks
advanced, 2019 stocks declined and 43 remained unchanged. Markets will now wait for
developments at the US Fed meeting on October 29