IN HINDSIGHT, there will always be enough explanations as to why a correction was imminent. Unrealistic valuations of many midcap companies, erratic foreign fund flows, and weakness in world markets together had formed a perfect breeding ground for bears. But when the fall finally came, most players were caught offguard by its swiftness and extent. Sellers targeted overheated secondline shares as the market tumbled 4% on Monday, in line with the bearish mood across the globe. The 30-share Sensex shed 769.48 points to close at 19,261.35 while the 50-share Nifty retreated 270 points to close at 5,777. While it may be too early to conclude if there is a definite reversal of trend, bulls seem to be treading on eggshells for now. As per provisional data, foreign funds net sold Rs 2,151 crore worth of shares on Monday. Buzz on the Street is that much of the selling by foreign investors over the past month or so has to do with unwinding of participatory note positions, as stipulated by Sebi. “Basically, global indices are weak. India has dramatically outperformed, particularly the small and midcap indices, and the fall is a somewhat-needed pullback and consolidation,” says Lehman Brothers head of equities Pankaj Vaish. “All the high beta stocks got hit hard, so there was profit taking/liquidation on the high-flying names as well,” he adds. Among the key markets in Asia, shares in Singapore, Taiwan, South Korea and Hong Kong were down around 3% each while in China and Japan, they fell around 2% each. High US inflation big concern Higher-than-expected inflation data in the US have raised concerns that the US Federal Reserve may not go in for further cuts in interest rates, contrary to what most global investors are expecting. This sparked a selloff in equity markets worldwide, as most investors feel interest rate cuts are crucial for the US economy to avoid a full-blown recession. It remains to be seen to what extent Indian equities will remain insulated if sentiment in world markets worsens. “In the near term, markets are likely to remain choppy as liquidity will be a concern. FIIs have already net sold over $1 billion in November; if the US gets into more trouble, people will take a relook at their portfolios,” said Deutsche AMC CEO Vijay Mantri. With Goldman Sachs, Bear Stearns and Morgan Stanley set to report quarterly earnings this week, investors fear more subprime loanrelated skeletons to tumble out of the closet. Prices of base metals and commodities also weakened on concerns that the turbulence in the financial markets is likely to crimp demand. Back home, the BSE Midcap and Smallcap indices were down 4% and 3%, respectively. Market breadth was negative with two shares declining for every one that rose. However, the market’s fascination for secondline stocks seems to be far from over. As many as 437 stocks on BSE hit the upper end of the intra-day circuit filter while 251 crashed to the lower end. In the B2 group, which houses smallcap stocks, 215 stocks hit the upper end, compared to 99 that hit the lower end of the circuit filter. In sectoral trends, metal shares were the worst affected with the BSE Metal Index falling over 7%. The losers were led by Hindalco and Tata Steel, which fell around 6% each. Realty and oil and gas were the other major underperformers. DLF fell over 7% while ONGC and Reliance were down 6% and 4%, respectively. The BSE Realty index shed close to 6% while the BSE Oil and Gas index fell 5%. Combined cash market turnover was Rs 31,000 crore, compared with around Rs 29,000 crore on Friday. Turnover in the derivative segment on NSE was over Rs 73,000 crore, up sharply from over Rs 61,000 crore on Friday