07 May, 2021

The Chill Factor

The reason for the bloodbath: the Sensex is skating away on the thin ICE of the new economy

The Chill Factor

If you said the stockmarkets were skating on ice last week, you wouldn't be far off the mark. Except that the ice (the popular acronym for infotech, communication, and entertainment stocks) was certainly not thin-on an average, these stocks have risen by a record 500 per cent in the past six months. Yet, why were the astronomical gains wiped out in a few trading sessions? So drastically that punters had to send an sos to the 'outdated' Hindustan Lever to prop up the sagging benchmark, which closed a shade above 5000 on March 16?

There was widespread selling in the ice stocks alright. And the tech-heavy NASDAQ, where biotech scrips are bleeding, went on a downward spiral. But the frantic selling on the BSE wasn't just a post-budget whack. There are certain other aspects that triggered the market slide.

ice stocks are inherently volatile. Reasons: these are stocks with a low equity base and even lower public holding (floating stock). The average equity capital of these companies is around Rs 20 crore and the public holding in them in most cases would not be more than 20...

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