Margin calls, rumours hit mid-caps Panic Selling Pulls Index Down 2.1% | Several Stocks Close At Lower Circuit

Mumbai: Fears of margin calls on certain mid-cap stocks after the recent slide in the market, combined with rumours of selling by traders and foreign funds operating participatory notes from Mauritius, led to panic selling in mid-caps on Thursday, pulling the BSE index for this segment down by 2.1%. 

    In Thursday's market, Tulip Telecom, after cracking as much as 40% in intra-day trades, closed 26% lower on the BSE, while a host of other stocks, including Parsvnath Developers, Pipavav Defence and Era Infra, closed at the 20% lower circuit level. 
    The day's session also witnessed a 206-point fall in the sensex, which closed at 16,640, its lowest close since early June, and investors were left poorer by Rs 50,000 crore with BSE's market capitalization now at Rs 59.16 lakh crore. 
    Dealers said there is fear among speculators and traders that the recent sharp slide in the market could trigger margin calls from their brokers. Falling in four of the last five sessions since July 19, the sensex has lost 3.7% and the BSE mid-cap index 4.2%, data from the bourse showed. Market players said some brokers have already started marginbased selling. However, the same is not widespread yet. 
    A margin call is a demand by a broker that an investor deposit further cash or securities to cover possible losses. In case of margin calls, traders and speculators are left with the choice of either liquidating their positions or putting in more money to meet their margin requirement. In a falling market, to limit their losses, usually these market participants prefer to cut their positions, which in turn leads to a further slide in these counters. 
    It eventually becomes a vicious circle of a sharp slide in stock prices that triggers margin calls, which in turn leads to selling and a further slide in prices. 
    Other than the anticipation about margin calls in a number of mid-cap counters in Thursday's session, there were rumours about some foreign institutional investors (FIIs), which had P-Notes in their books, liquidating part of their positions in mid-cap stocks. 
    NSE data showed that units of Barclays and Macquarie were among the sellers in some of the mid-cap stocks, while institutional trading data showed that FIIs were net sellers at Rs 1,181 crore — the second-highest single-session outflow this year. 
    There were also rumours that some large operator, based in Kolkata, sold aggressively. In addition, there were also talks about placements of shares by a domestic infrastructure company with some insurance companies, which may be investigated by government agencies.