Analysis and Impact of the Sensex Crash

bull.jpgThe Indian Stock market has been through a lot of phases in a span of few years and the investors have had their share of surprises too. The Sensex, with its mysterious highs and lows, has given the share-holders and traders ‘something’ to ponder and discuss about. Every fluctuation in the stock market makes the investors lose their calm and gets their heart pumping, while their eyes remain glued to track the minutest shift in the stock prices.

The recent Sensex crash on January 2008 swept with it a large number of small scale investors while registering a record dip of 2062 points in a day. The Sensex has so far surprised the masses with its exponential growth over the years and has persuaded them to jump into this game of achieving growth with the economy. Though, no doubt, it has turned many into millionaires and billionaires, but at the same time, it has ruined those poor investors who had been eyeing an easy growth mechanism without having the substantial know-how of its feasibility.

The major cause of this crash was attributed to the recession in the global economies, especially with the US dollar losing its strength to the Indian rupee. A large amount of equity in the form of shares was floated in the Indian economy as an impact of Foreign Institutional Investors (FII’s) withdrawing their money from the Indian markets. It is a fact that US citizens keep five to six credit cards on an average, and the recent stagnation in the US markets left them with debts, thus leaving them with no other option than that of pulling back their capital from the foreign markets. This has disturbed the demand and supply ratio to a great extent resulting in easy availability of shares of well-performing companies, thus leading to a dip in the selling price of these shares.

At the same time, this slowdown has also affected the opening price of a number of IPO’s including the much-hyped Reliance Power. The IPO which offered shares worth Rs.26 crores, will raise between Rs 10,500 crore and Rs 11,500 crore — the largest issue to hit the Indian primary market. The Reliance group offering bid for their shares in the price band of Rs 400 to 450 was heavily over-subscribed, but has also come down to suffer a major setback. The group that finally diversified its assets by offering 15 shares to above average bidders and expected to reach at least Rs 600 mark in its opening price, saw Reliance Energy down by about 16% reeling under after-effects that gripped the volatile markets.Hence, the people who had stood in front and filled their pockets at the time of booming markets had to stand by at the time of crisis too when the Sensex withered away due to western disturbances.Ishant Arora

[Image courtesy:]