Mumbai: The slaughter on Dalal Street has been huge; however, the indices have managed to recover some of its losses. At close, the BSE Sensex stood at 17,314.11, down 379.07 point while the NSE Nifty tanked 107.75 point to close at 5,224.05.
But what might have lead to this massive fall? Here are five factors that could have accentuated the fall in share prices on Friday.
1) Selling by foreign institutional investors, especially many of the short term players who may have bought aggressively during the recent rally when the Sensex hit 19000.
2) Lack of depth in the market, which may have led to even small sell orders having a multiplier effect. Traders/investors who suffered heavy losses in one stock would then try to offset those, by booking profits wherever possible.
3) The steep fall in share prices would have triggered margin calls on shares pledged by promoters, with financiers. Wherever promoters were unable to provide the additional collateral, financiers would have dumped the shares.
4) Algorithm trading, commonly known as program trading, would have contributed to the panic as computers remorselessly executed trades at pre-specified price levels.
5) Many institutional investors with a sizeable portfolio of frontline shares, would have heavily short sold Nifty futures as a hedge. So even if the prices of the shares in their portfolio fall steeply, they will make some trading gains on the Nifty futures.
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