Why the markets crashed

Marketmen were dumb-founded and the government swung into action seeking to know from the stock market authorities and the regulator as to what caused the cataclysmic fall that coincided with the second anniversary of the Manmohan Singh government.

The market had crashed by 826 points only last week during a single-trading day following speculation triggered by a CBDT draft circular that the government would slap higher tax on Foreign Institutional Investors.

Sensex crashes by 1,112 points

Today's fall, with Sensex tanking nearly 10 per cent to touch four digit level at 9,827 points, follows a CBDT statement debunking media reports that investors would have to live at the mercy of tax officials.

Impact of downslide witnessed last week led to the declining trend in the market, with analysts also attributing the compounding of situation to apprehension of payment problems.

The Sensex's rise and fall: Coverage

"Rumours of many brokers not being able to honour their payments has also led to the crash," an analyst said, adding that all were stuck up in a big payment crisis and are trying to meet their obligations.

Technical analyst Anil Manghnani said the situation was similar to that on May 17, 2004 and that the meltdown was more in futures market. "It is redundant to look at levels."

Asked about specific reasons for the fall, marketmen could not pin-point, but said there seems to be panic all around. Others felt that a subdued market would provide new entry levels.