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Sudhanshu Ranade

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Chennai Feb. 14 A study shows that buy and sell orders for low-priced stocks are large. So is the quantity of these stocks that gets traded on any given day. This may be because retail investors hold only a few high priced stocks, to avoid placing all their eggs in one basket. But one thing is sure. Right from January 2006, whether the Sensex has been rising, falling, or `moving sideways', the higher the price of a Sensex stock the smaller the quantities of it that are traded. This inverse relationship becomes stronger if Reliance Industries stock is left out of the reckoning.

Average Daily Trade

From January 2 to February 28, 2006 - when the Sensex rose from 9390 to 10565 - ITC, Gujarat Ambuja and HLL together averaged 7.6 million stocks a day, one third of total Sensex stocks traded. The correlation between the price and the traded quantity rose from -0.42 to -0.53 when RIL stocks were excluded.

From March 1 to April 20, 2006, when the Sensex rose from 10565 to 12040, the negative correlation with and without RIL stocks was 0.53 and 0.56 respectively. Three stocks accounted for one third of average daily trade in Sensex stocks: Reliance Communications, ITC and Gujarat Ambuja.

After rising steadily for four months, the market suddenly crashed, plummeting 200 points in 23 days from April 20 to May 22, 2006. But there was no change in the price/quantity relationship: -0.53 with RIL, -0.58 without it. Once again, one third of average daily trades in Sensex stocks were accounted for by three low priced stocks: ITC, Gujarat Ambuja, then trading at Rs 85, and Hindalco (Rs 144).

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