Margin calls in mid & small-caps pull indices Down; Sensex falls 323 points

MUMBAI: Mid and small-cap stocks led the selloff on Dalal Street on Thursday as traders were forced to dump their positions indiscriminately to meet margin calls. Benchmark indices fell close to 1 per cent, while mid- and small-cap indices dropped 2 per cent on Thursday as the decline in the rupee to a fresh two-year low and worries that the Fed may raise interest rates soon sapped sentiment.

The late tumble in Chinese stocks added to the pessimism.

After trading marginally lower in early trades, markets began sliding mid-way through the session on talks select foreign funds were selling, especially banking stocks.

Foreign institutional investors (FIIs) sold shares worth Rs 1,007 crore on Thursday, according to provisional data. The weakness soon spread to the broader market as brokers made margin calls to clients. This caused a domino effect as traders were unable to cough up the additional margins, forcing brokers to sell collaterals and stocks on behalf of the clients.

The BSE Sensex declined 323 points, or 1.16 pct, to end at 27,607, below the 200-day moving average of 28,007. Nifty dropped 122 points, or 1.44 pct, to close at 8,372, below the crucial level of 8,500. Declines outnumbered gainers 2,075:763 across categories on BSE.

“Investors who were holding midcaps for quite some time got shaky after Thursday’s global market selloff, and this led to pressure in midcap space,” said Sahil Kapoor, assistant vice president research at Edelweiss.

The rupee, after erasing early gains, dropped 28 paise to close at 65.55 to the dollar, tracking losses in other Asian currencies after Chinese stocks slumped in a late selloff.

BSE’s banking index fell 2.3 pct, while real estate index fell over 4 pct on Thursday. “Market participants who were betting on sooner than expected interest rate cut are giving up hopes because of global uncertainties. This has led to the selling pressure in banking stocks,” said Devang Mehta, senior vice president at Anand Rathi Financial Services.

Domestic institutional investors bought shares worth Rs 567 crore, cushioning the fall on Thursday. Metal and mining stocks continue to edged lower on weakness in prices in the global commodities markets.