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Rasheeda Bhagat

`Markets enter bear phase; next up move expected in 2007'

Chennai , June 15

Slowly the distress stories are coming out. Like that of a Pune businessman who is today living with his sister, because his house that was pledged, "perhaps with an NBFC associate of his broker, was sold to pay for his losses. He's my friend and I know he has lost about Rs 4 to 5 crore in the crash of the last couple of weeks," says Mr Nirmal Kotecha, an investor from Mumbai whose success story was profiled earlier in these columns. "He has lost everything he had, and I don't know what he is going to do now," he adds.

F&O market

On Thursday, even though the BSE Sensex closed 615 points up, not too many people were smiling. "That is because people have done stupid things to invest in this market, going beyond their limits to leverage their positions in the derivatives segment," says Mr Arun Kejriwal, Director of Kejriwal Research and Investment, Mumbai. Giving an example of how badly investors have been hit, he said that to take positions worth Rs 5 lakh in the F&O market, an investor has to pay a margin of about Rs 1 lakh.

"There were many people who had borrowed such a sum from a bank, against their shares. As the prices crashed, not only did their F&O margin money disappear, they owed an additional Rs 1 lakh or so to the broker. On the other end, the bank sold their shares. So such investors have lost their entire holdings and have ended up owing money to the brokers." He thinks SEBI should ensure that the exchanges hike up the margin money to 50 per cent, so that such mindless leveraging doesn't take place, destroying people.

PMS clients

Mr Kejriwal adds that Mumbai is agog with stories of PMS clients going up to their brokers and demanding that their shares be sold and the remaining money returned to them immediately through cheques post-dated by a few days. "And then there is this story of a single family in Mumbai ... that of a leading jeweller... having lost over Rs 1,000 crore in the derivatives segment. Apart from the stock market, they had also taken huge positions in gold and silver in the commodities market, and it was a double whammy for them."

In Andhra Pradesh and Karnataka, says Mr Sandeep Shenoy, Senior Strategist at Pioneer Intermediaries, Mumbai, there were incidents of a branch manager of a leading brokerage in Bangalore being roughed up by investors, and another one "kidnapped" by irate investors who had lost a chunk of their money. "I had to go through two months of pain and humiliation as I had started warning my clients when the Sensex touched 10,500 levels to be careful and book profits. As the market continued to rise, I wondered whether I had got it wrong."

He thinks the market has entered a "bear phase and we have 6-8 months or two quarters ahead, which will be extremely tiring." He agrees with Mr Kejriwal that for some time we might have seen the bottom of 8,800, "but in the days ahead the market will remain sideways. I think the next upmove will come only in January or February 2007."

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