Flash Crash II adds to edginess

It was a scene reminiscent of the 998-point ‘Flash Crash’ of the Dow Jones on May 6.

While high-frequency trading was the ostensible cause of the Dow-wow, the Sensex fell victim to the ‘fat finger’ syndrome — where the trader presses the wrong button — around 1 pm on Tuesday.

Instead of selling ICICI Bank shares at Rs 840, the as-yet-unidentified trader sold Reliance Industries (RIL) shares at that price on the Bombay Stock Exchange (BSE). Considering RIL’s weightage in the Sensex, the market plunged as much as 626.24 points to 16318.39.

A spokesperson for the BSE said the matter was under investigation.

The RIL share, however, strongly rebounded from there to close the day at Rs 1,011.55.

Sentiment on Tuesday was also overly negative as fears about Europe refused to go away and data showed manufacturing is slowing in China.

The Sensex ended down 372.60 points or 2.2% at 16572.03. The Nifty closed at 4970.20.

“It was a freak transaction and no large volumes were traded. The regulators should keep such events in check because of their unintended consequences.

Such errors get corrected fast, but it can affect investor sentiment,” said Deven Choksey, managing director of broking house K R Choksey Securities
The market breadth remained weak with all sectors closing in the red. Metals slid 3.86% in the Chinese ruboff.

Data released by the Chinese government on Tuesday showed manufacturing expanded at a slower pace in May, suggesting the government’s steps to cool the economy could have a negative bearing on the Indian metals sector.

“The slowing down is a well-calculated step by China to avoid overheating. This will prove to be a major setback for Indian commodities as it was looking to recover from the decline in Chinese demand,” said Nirakar Pradhan, chief investment officer (CIO) at Future Generali India Life Insurance.

Additionally, the European Central Bank (ECB) said on Monday said European banks could face potential writedowns or bad loans of as much as 195 billion euros over the next 18 months.

“The panic was mainly because of the writedown statement by the ECB and the slow manufacturing growth recorded in China. The markets will remain volatile in the short term and a correction of 4-5% can be expected,” said N Sethuram, chief investment officer at Shinsei Asset Management.

Foreign institutional investors were net sellers by Rs 526.49 crore on Tuesday, according to provisional figures from exchanges. In May they were net sellers by Rs 9,341.35 crore, the largest monthly sell-off since October 2008.

But growth in India is expected to be resilient experts said, with monsoon seen normal.

“Global concerns will not affect the India story. The country has posted an 8.6% GDP growth in the fourth quarter. That’s some resilience in a weak global situation. Remember, agriculture accounted for only 0.02% of the GDP because of inadequate rains last year. With monsoons predicted to be normal this year, the farm sector will provide impetus to the economy,” said D D Sharma, senior vice president- research at Anand Rathi Financial Services.