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Big Bull's woes pull down Sensex by 195 points

Nikhil Faleiro

The Big Bull once again rampaged through the Bombay Stock Exchange, creating panic in the market and causing the 30-share Sensex to fall by a massive 195 points on Monday.

The stock market, which had been tottering since last Wednesday after the bourses in the South East Asian markets went through the floor, showed signs of recovery, but when news filtered in that Harshad Mehta was facing a financial crisis and was not able to pay the Rs 340 million that he owed the market, scrips began tumbling today.

The Sensex, which closed at 3347 points on Friday, opened on a weak note today as brokers awaited news that the Big Bull would be in a position to pay off his debts. The market opened on a sluggish note, and touched an all-time low of 3151.23 points before closing at 3152.96 points. But when news filtered in of his inability to do so, and worse, the actual sum outstanding against his name was approximately Rs 600 million, panic-stricken brokers began offloading their positions in anticipation of a bloodbath.

Admits Manish Shah, vice-president of Gold Crest Securities, "This crisis has been troubling the exchange for the past one week, and unless the syndicate makes its payments no one will make any deliveries because they are afraid of making huge losses. I expect the market to remain depressed till Thursday."

The crisis erupted last Thursday, when it was found that the outstanding levels of shares at Videocon, Sterlite and BPL counters had gone beyond the prescribed limits. At the Sterlite counter, two million shares were outstanding and at Videocon it was five million, while at BPL it was 2.8 million. When news broke that badla financers would not be able to finance carry-forward positions in these shares, the market took a tumble with the Sensex dropping 100 points on Thursday.

With the badla charges on Videocon fixed at 185 pc, BPL at 162 pc and Sterlite at 43 pc as compared to the standard rate of 20 to 21.5 pc annually, the brokers's fears of a payment crisis was justified. And with the net long positions worth Rs 1.3 billion on these three scrips and with no financiers willing to fund the badla, brokers began to offload scrips, in the fear that a payment crisis would rock the Bombay Stock Exchange.

However, the crisis was slightly averted when some of the carry-forward scrips declined, indicating that they had found some financier. When the market closed on Friday, the net outstanding volume at the BPL counter stood at 2.35 million scrips, with the net outstanding position amounting to Rs 340.3 million, at the Videocon counter it was 3.3 million shares with the value pegged at Rs 327.9 million and at the Sterlite counter it was 1.34 million shares worth Rs 166.8 million.

Says Clifton D'Souza, vice-president, Altina Securities Pvt Ltd, "Till a clear statement is forthcoming from the exchange over the current position of the payments, the market is going to continue to fluctuate. Combined with other factors like SEBI's decision to re-open the Alcan-Indal last offer and Mark Tobias's statement that FIIs are not finding the market attractive, this has contributed to bearish sentiments."

With payment day close on Friday and the likelihood that the syndicate led by Harshad Mehta may be unable to meet the payment, despite the crisis being slightly averted, the bearish sentiments could not be averted in the market. News also filtered in that 25 brokers face heavy payment problems, adding to the market's woes. Rumours abounded, too, that 90,000 shares of BPL had been stolen from the clearing house of the custodian, and it was the fear that fake shares would find their way into the market that led to the bears strengthening their grip on the market.