Margin calls may be amplifying fall in share price: Brokers

Unwinding of speculative positions could be aggravating the fall in the market, brokers said. The near one-sided climb in benchmark indices since February this year, would have encouraged bull trades to take bigger risks, as the market would bounceback quickly after every correction.

The Sensex is now down close to 470 points, the Nifty down 135 points, and the Bank Nifty down over 500 points.

Selling has been particularly sever in midcap shares, many of which are down 8-10 percent.

Also, many operators would have created long positions in mid-cap shares by pledging shares, the value of which would have fallen over the last week. This would have triggered margin calls, wherein the operators would have to either deposit fresh collateral or return some of the funds they had borrowed.

Inability of the market operators to meet the margin calls would have prompted the lenders to dump the stock, brokers said. Two factors could intensify the slide further:

One, if institutional investors unload shares in big quantities, there would be too much supply for the market to absorb quickly.

Second, violation of some key support levels like 8000 on the Nifty could cause traders to panic and unwind their long positions and even go short on the market in a big way, setting off a vicious cycle of falling prices leading to more selling.

Also read: Bank Nifty hammered in market freefall; plunges 543 points