The Hindu Business Line : Volatile or declining Sensex sends turnover up

It has been said that life must be lived forwards but can only be understood backwards. All post-mortems are subject to this caveat. The Sensex is no exception.

It swung wildly from one day to the next from April 7 to May 11 in 2006, and from June 15 to July 24, when it was on its way up, and between June 15 and July 24, and between May 12 and June 14, when it `plummeted', in the zig-zag fashion that is characteristic of volatility, from 12,285 to 8,929.

During this entire period, average turnover on the 38 days when the Sensex fell was higher than the 38 days on which it rose. The difference was more than Rs 400 crore per day. The number of transactions (1.15 million to 1.03 million) and total quantity traded (103 million to 95 million) were both higher on days when the Sensex fell, than when it rose.

Small investor

People say that the `fact' that the small investor stays away when the market is volatile shows up in a drop in the number of transactions and in the quantity of shares traded.

Actually, the figures suggest that either the small investor perversely has a higher propensity for risk, or that institutional investors are so much better equipped to fish in troubled waters that their surge of interest during such periods more than makes up for the small investor's diffidence.

Even on days when the market was relatively steady, there were 61 down days (when the Sensex declined an average 79 points), and 109 up days (when the index rose by an average of 94 points).

Here too average turnover was greater (though only by Rs 120 crore) when the market fell, than when it rose.

One last thing: Average turnover, total quantity traded and the number of transactions were all (32 to 47 per cent) greater in the volatile phase of the 2006 market than during its relatively quiescent periods.

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