Why did the stock markets crash

Mumbai: Market has lost further ground and has slipped deeper into the red. Selling is seen in scrips across sectors.

Among the major losers are stocks from auto, bank, oil & gas and metal sector. The only BSE sector index in green was IT. Broader markets have also slipped in red.

This is the biggest single-day point fall since April 27.

Top losers on the Sensex are Tata Motors down 3.87 per cent, ONGC down 3.05 per cent and HDFC down 2.4 per cent.

Markets have been hesitating to make new highs correcting over the last couple of days and now there is a concern that new highs may some distance away.

Portfolio Manager P N Vijay agrees that there is some concern, because the markets are quite listless. There seems to be a lack of buying interest.

He says, “One reason for that could be, that we had so much happening in April and May on the corporate front, inflation etc, which is why people are taking it easy”.

Despite all the positive news flow, strong GDP numbers, steady US markets, smooth rollovers and monsoon arrival, markets could not breakout last week.

This means there could be selling pressure at higher levels and therefore any global reaction can lead to a fall in the markets.

Gautam Shah of J M Morgan Financial Services says, “I think the battle lines are clearly laid – 4,200 is turning out to be a strong support level for the bulls and at the same time 4,300 is turning out to be a huge resistance to surpass for the Nifty. And in the extreme short-term, we might just see a little bit of selling pressure coming in that could lead to a small correction.”

While, T S Harihar of Karvy Stock Broking says, "It is difficult to pinpoint any reason, because fall has come in the light of two things. First, it rallied sharply over the last three months and 4,300 has been a psychological resistance."

So, he reasons that when a market fails to breach this mark after repeated attempt, there will be a bout of selling.

"The weak hands are getting out of the market and it is resulting in a very much-needed distribution of positions in the market," said Harihar.

But, at the end of the day, markets don't move up beyond a level. Anand Tandon of Gryffon Investment Advisors says, "And if it could be explained why markets continue to go up day after day, the logic could be reversed to explain this fall."

There are issues cropping up, in terms of a very large number of IPO pipelines building up.

"At some stage the markets have to turn direction, whether just one more scare before which it starts to go up again, only time will tell," Tandon said.

But, as a prudent investor you will be better off taking some money off the table.