Post-mortem: Why did the markets crash?

Mumbai: Market experts and technical analysts looked for answers as the markets witnessed strong volatility on Monday, breaking all technical and psychological levels.

At one point on Monday, the Sensex shed 2050 point to hit 16950 as investors resorted to panic selling, pushing almost all heavy-weight stocks to their recent lows. It was the biggest ever intra-day fall for both Sensex and Nifty.

The Nifty dropped by 650 points at one point, as metal and realty stocks suffered the most.

So, what caused this bloodbath? While the first prognosis of the crisis was that fears of recession in the US brought in the market crash in India, some experts hinted that the markets might be entering a phase of consolidation.

Experts point out that the market movements are based on internal, technical parameters. "The current movements have been caused by margin pressure and heavy selling by the FIIs in the face of bad global clues," market analyst Ashwini Gujaral says.

The global cues were very weak over the weekend. The European markets declined quite heavily on Friday, while the US indices underwent a milder fall. Asian markets were down heavily on Monday morning and there was enough indication that another global sell-off was under way.

On the FII front, the FIIs sold $541.9 million of stocks on Thursday, while the MFs acquired $89.5 million. The FIIs are averaging daily sales of $195.9 million over the last five sessions and the MFs are selling at a rate of $51.7 million.

Market expert and Executive Editor of CNBC-TV18, Udayan Mukherjee, however, hints at a genuine correction. "The rise in the market was getting mindless in certain pockets and sometimes you pay for that kind of mindlessness," he says.

Marketmen, however, attribute the fall to weakness across global market in the last six trading sessions including Monday pulled down the market to levels last seen in October last year.

RBI Governor Y V Reddy's remark that the Central bank would continue to be sensitive to high crude and food prices prevailing globally, further fuelled selling. Absence of overseas investors from the market due to rising concerns of inflation in the US, also remained a dampening factor, they point out.

However, not many people agree that the bull run has been stalled for now. "Our market’s long-term (major) trend is still up as the indices have rising intermediate tops and bottoms.

"In terms of the market, India was possibly among the last markets to correct following a lot of global cues which have not been positive at all. All major global markets are in intermediate downtrends," experts point out.

However, the experts also warn that the markets may not be going to pull back in a hurry. "The market needs some time for consolidation. Global cues is the biggest driver of the current market position today," they point out.