When there was great global liquidity, FIIs invested in India pushing up the markets, he said. Now there is no global liquidity so FIIs are pulling out in a hurry. “We enjoyed the benefit of high global liquidity, now we have to bear the other side of the stick,” Jagannadham Thunuguntla said.

1. Sensex dives to 3-yr low
Mumbai, DHSN/Agencies:
Call it carnage, bloodbath or sheer market mayhem: the woes on the bourses
seem never-ending. The Sensex lost nearly 1,100 points and investors Rs
300,000 crore in a single trading session just days before Diwali.
Today’s fall was second only to the 1,408-point drop witnessed on January 21 this year
and pulled the Sensex down to its lowest in three years at 8701.07 points. The three-day
losing streak that saw the Sensex dropping by 1,982 points could not be halted by the pep
talk by Finance Minister P Chidambaram, whose advice against panic sales was not
heeded by investors.
The RBI’s credit policy that left key rates untouched failed to evoke a positive response
from the banks that they would cut lending rates, adding to the negative sentiment.
The pressure on the domestic bourses was accentuated by the selling saga in the global
markets, particularly east Asia early Friday morning, amid reports that both Britain and US
were heading towards recession.
As many as 20 stocks from the 30-share Sensex pack fell more than 10 per cent each with
DLF, Ranbaxy Laboratories and Hindalco Industries leading the fall. Reliance Industries
tumbled as its net profit in Q2 (September 2008) rose at the slowest pace in the last 10
quarters.
“As far as I can remember this is the steepest fall ever in the history of the BSE in both
points and percentage terms,” said Jagannadham Thunuguntla, head of the capital
markets arm of country’s fourth largest share brokerage firm, the Delhi-based SMC Group.
“Yes, this the biggest ever crash in the BSE's history,” said Ashish Kapoor, chief executive
officer of Delhi-based Invest Shoppe India Pvt Ltd, a fact that was also confirmed by
portfolio strategist Manoj Krishnan of Delhi-based financial services firm Price Investment
Management & Research Services.
“There was large-scale selling by hedge funds and even by pension funds to protect their
assets. Pension funds normally buy when markets are down,” said Kapoor.
California Public Employees Retirement System or CalPERS, one of the largest pension funds
in the world is an example, Kapoor said. Said Thunuguntla: “What is the guarantee that
more liquidity would have stopped the fall in equity prices? On the other hand pumping in
more liquidity would have added to inflationary pressures and might lead to more problems
for the real economy.”
According to him, FIIS are selling like mad to take out whatever money they can because
yen carry trade has gone even more out of hand and they are under tremendous liquidity
pressure in their home countries.
In yen carry trade, hedge funds used to borrow yen denominated loans from Japanese
banks at a negligible interest rate of 0.5% and then converted these funds into other

2. currencies and invested across the globe.
So, even if they earned a return of as low as 2-3% they still made a profit on those
investments because their cost of funds was only 0.5%.
Now with the dollar appreciating against the yen the conversion rate has hit a 13-year high.
Currently the exchange rate is 95 yen to a dollar when a year ago it was 109 yen to a
dollar. This means yen denominated loans have become costlier by almost 15% so that the
cost of yen denominated loans is now 15.5% against only 0.5% earlier.
This is forcing hedge funds with yen denominated loans to repay those loans as soon as
possible and stop losing money. This is the reason they are selling whatever assets they
have, wherever they have, to repay yen denominated loans, says Thunuguntla.
When there was great global liquidity, FIIs invested in India pushing up the markets, he
said. Now there is no global liquidity so FIIs are pulling out in a hurry. “We enjoyed the
benefit of high global liquidity, now we have to bear the other side of the stick,”
Thunuguntla said.