Investors and brokers went into a frenzy trying to explain, largely to themselves, what happened on Wednesday. But the word on the street is caution, brokers are advising clients not to panic.
Vijay Saraf, COO at Centrum Securities, said: "The correction was due and expected. Profit taking was the main reason for the correction on Wednesday, and we saw a cascading effect as investors took a cue from international markets."
Market entities said some selling was also seen as investors sold on technical calls at these levels.
To be sure, there is no single, all-encompassing explanation. But the sequence of events, pieced together from various dealing rooms, suggests it was a combination of hedge fund sales, margin calls, and genuine profit-booking sales.
Deepak Chhabria, COO of the institutional equity business at IL&FS Investsmart, said: "Excesses in outstanding positions in the derivatives market were cut, which was the main trigger for the fall on Wednesday. The cost of carry hinted at an extremely overbought situation in the near term and hence some correction was expected. Going forward, we can expect a rangebound market with 'sector churning' in the result season."
Vijay Bhambwani, CEO at BSPLIndia.com, said, "The fall on Wednesday was due to the excessive rally in the short term. Large bull positions were created in the F&O (forward and options) segment and the current fall has seen a collective action of profit taking and bear hammering. Short-term support exists at the 2,000 level for the National Stock Exchange's S&P CNX Nifty and at 6,385 for the Bombay Stock Exchange's Sensex."
Day traders, who thrive on volatility, were badly burnt in the carnage, brokers confirmed. Several of them had to sell some of their "good" scrips to make good the day's losses, which explains the dip in the indices in the last hour, brokers said. The worst hit were margin funding clients, market players said.
Abhay Aima, country head of equities and private banking at HDFC Bank, said: "A long overdue correction happened. But nothing much changes as the fundamentals remain the same. Though the fall in absolute terms was large Wednesday, the base is also higher now. In relative terms, the fall is not so big. There is no cause for panic, but expect volatility at these levels."
Rajesh Kamdar, a dealer at KG Vora Securities, said: "Small investors were slightly shaken up by Wednesday's fall and the euphoria of the last few days seems to have ended. We are advising our clients to be careful and invest in only good scrips."
K Rajagopal, chief investment officer, Reliance MF, said: "After this fall people will be a little more cautious about investing. Certain segments, such as automobiles -- which has seen some good numbers being reported -- will see some bargain buying. Metals and banking are other sectors that should yield good buying opportunities."
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