Wednesday, March 19, 2008

Investors lose 24.6 lakh crore since January 2008

MUMBAI: The fallout of the acute financial crisis in the US has resulted in a massive 6,000-point blow to the Sensex in the past two months, the biggest absolute short-term loss recorded by the Indian stock market so far.

While there have been many occasions of stock market crash since the days of Harshad Mehta, the current one has been the hardest-hitting as it wiped off investor wealth of several billion dollars in just 48 days.

The latest blow came in the form of the collapse of Bear Stearns, which apparently caused a major unwinding of the US investment bank’s P-note positions in Indian equities in the past few days.

Since its peak of 20,873 scaled on January 8, ‘08 the Sensex has been on a downward spiral, ending below the psychological 15k level at 14,809.5 on Monday. During this period, the index nose-dived 6,064 points, or 29%, resulting in erosion of investor wealth of staggering Rs 24.6 lakh crore, or $608 billion, to Rs 48.9 lakh crore.

Analysing stock market movements since ‘92, ET found that the Sensex had taken beating many times in the past but not as sharp as the latest one. Unlike on previous occasions, the magnitude of loss this time was on a huge base that the index had built in the prolonged bull run between 2003 and 2007.

While the previous crashes were mainly triggered by domestic factors, the current one is more to do with the unrelenting global crisis. For instance, in 2006, the Sensex had taken a 3,683-point, or 29%, hit in just 26 days between May 10 2006 and June 14 2006. The index had, in fact, registered single-day loss of 826 points on May 18 on large FII selling triggered by weakness in global markets.

In 2004, major political concerns had dragged down the Sensex by 565 points, or 11%, on May 17 ‘04. The index, in fact, had witnessed a sharp intra-day fall on 842 points in a knee jerk reaction to the defeat of BJP-led NDA government then.

The stock market has also been victimised by two big securities scams in the past. In 2001, the breaking of Ketan Parekh-Madhavpura Mercantile Bank scandal pulled down the Sensex by nearly 1,400 points, or 30%, between March 1 and April 12.

Much before, in 1992, the unearthing of the then leading stock broker Harshad Mehta-masterminded scam caused the first ever biggest and sharpest fall in the history of the Indian stock market.

The Sensex had crashed nearly 1,900 points, or 42%, in 52 days between April 2 and August 6, ‘92. The trading was suspended on many days during that period.

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