BackWho were the sellers in Friday’s market crash?
Analysis shows Friday’s market was driven by proprietary trading desks, domestic trading houses and other local investors
Premium(Hemant Mishra/Mint)
The National Stock Exchange’s 50-share Nifty shed 4.08% on Friday to 5,507.85 points on a day when cues from Asian and European stock markets weren’t unduly negative. Indian shares emerged as the worst performers among Asian peers. What’s more, the government’s argument that the fall was exaggerated because Indian stock markets had been closed on Thursday while other markets had fallen on that day doesn’t wash. MSCI India fell 4.07% on Friday, while MSCI Emerging Asia fell just 0.8% between 14 and 16 August.
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In the current economic environment, there is no shortage of reasons to justify Friday’s decline. Let’s take a look at the usual suspects, the most popular one being the state of the local currency. On Friday, the rupee hit a new record low of ₹ 62.03 against the dollar during intra-day trade. Investors are aware of the perils of a weak rupee for a country that’s heavily dependent on imports. Add to that the fact that global crude oil prices are again at uncomfortable levels. Some say the measures introduced by the Reserve Bank of India (RBI) to curb the rupee’s fall are the first steps in the road to capital controls. Worries about the state of the economy and concerns about the US Federal Reserve reducing its bond-buying programme, of course, hover in the background.
But then, these aren’t really new worries that have suddenly surfaced. And, is it really true that foreign institutional investors sold heavily on Friday because of the fear of capital controls?
A Mint analysis of some of the sharpest declines in recent years certainly does not seem to indicate that. In fact, net institutional selling activity (foreign and domestic institutional investors) on Friday was a mere ₹ 73 crore. This includes foreign institutional investor activity in cash, index futures and stock futures.
That was the lowest net institutional selling among episodes when the Nifty fell sharply in the last four years. What is also peculiar about this is the fact that the last time the Nifty had declined exactly by 4.08% on 22 September 2011, net institutional selling was as high as ₹ 2,700 crore. Clearly, this shows that the market on Friday was driven by proprietary trading desks, domestic trading houses and other local investors.
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