Mumbai, Oct. 15: The strategy worked brilliantly on Monday; but it failed miserably today.

Finance minister P. Chidambaram’s attempt to talk up the market before it opened for trading with a promise of another cash infusion later in the day failed to resonate with investors.

At the end of an extremely nervous day of trading — sparked by fears that the job losses in the aviation industry were just the first warning signal of deeper troubles ahead — the bellwether sensex sank over 674 points to 10809.12 points, a 5.87 per cent fall over Tuesday’s close.

A disappointing performance by Larsen & Toubro (L&T) for the second quarter ended September 30 also raised concerns about corporate earnings.

The third factor that played on the minds of investors was steel major Posco’s warning that the global slowdown could crimp both the demand and prices of steel.

On Monday, Chidambaram’s pep talk had seen the sensex leap by 7.4 per cent.

After market hours, Chidambaram said the government would pump in another Rs 25,000 crore into banks to bolster their capital base — but by then it was too little, and much too late.

The drop in equity values was not seen in India alone. Worries of a looming global recession saw indices in Asia, Europe and the US stay in the red. Taking cues from weak Asian markets, the benchmark index opened weak at 11245.27. Brokers added that the fall aggravated after L&T declared its second-quarter numbers.

While L&T crashed by 11.7 per cent, it impacted other capital goods stocks as well. The BSE capital goods index led the list of losers as it crashed by 8.88 per cent. Metal shares were also sharply lower after the Posco guidance.

The Tata Steel scrip was down 10.6 per cent at Rs 272.60 on fears that the lower prices of the commodity could impact its future performance.

Index heavyweight Reliance Industries crashed over 6 per cent to Rs 1,519.25 as foreign institutional investors (FIIs) continued to press sales. During this year, FIIs have so far sold over $11 billion of domestic stocks.

Derivative margin

Market regulator Sebi today increased the margin requirement for exchange-traded equity derivatives to protect the interest of investors amid huge volatility being witnessed on the bourses in the past few days.

“To ensure market safety and safeguard the interest of investors, it has now been decided that the exposure margin shall be higher of 10 per cent or 1.5 times the standard deviation,” Sebi said in a circular.

At present, the limit for the margin requirement in derivative products is 5 per cent, which is calculated on the basis of share price movement, open interest and volatility involved in options of a particular stock.