Risk management framework initiatives help Indian markets in sharp fall

Indian financial markets saw everything in just a span of few hours of trade on Friday. Following the global sell-off, Indian equity markets clocked lower circuit of 10 per cent at 9.20 am. Soon after the reopening, the markets recovered sharply. As of 1.00 pm, the benchmark index Sensex had swung nearly 4,500 points from intra-day lows.

The surge in markets can be taken positively as the valuations may have come to attractive levels. Things such as lower energy prices, interest rates and liquidity can drive this rise further. Quality scrip which is available can be considered at reasonable valuations. Market reaction today showed this trend already. Heavy weights such as RIL, HDFC twins, SBI, Kotak Mahindra Bank have already started to rebound. At 2.20 pm, these stocks had not just recovered from lows but are also trading as high as three per cent to 10 per cent intra-day.

Reacting to the wild market swings and movements, SEBI released a statement regarding intensity of a fall in Indian equity markets in comparison to other countries and risk management. The published by countries largest security regulator suggested that indices in Brazil, France, Germany, United Kingdom, United States have fallen 36 per cent, 30 per cent, 29 per cent, 28 per cent and 21 per cent till March 12, 2020 when compared with closing of January 21, 2020. The risk management framework, which automatically got triggered with measures such as value at risk (VaR) margin with initial margin to cover 99 per cent risk of a transaction, extreme loss margin (ELM) which can cover the residual risk, circuit filters and index and stock levels etc. Such initiative from the regulator can be considered good for dampened sentiment of investors