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Investors looking for quick gains from the stock market would do well to curb their enthusiasm. Short-term trading on the Sensex and Nifty is clearly not a sound investment strategy at the present juncture in terms of returns.
Daily returns on the BSE Sensex and S&P CNX Nifty were negative at an average -0.2 per cent in April-December 2011. What is more, the risk was high, with daily volatility measured at 1.3 per cent on both indices, according to market regulator SEBI. During the nine-month period, the Sensex declined by 20.41 per cent, while the Nifty lost 20.62 per cent.
The pattern of negative daily returns was seen across global stock market indices such as the UK’s FTSE-100 (-0.1 per cent), Australia’s AS 30 (-0.1 per cent), Hong Kong’s Hang Seng Index (-0.1 per cent), Singapore’s Straits Times Index (-0.2 per cent), Japan’s Nikkei (-0.1 per cent), Brazil’s Bovespa (-0.2 per cent) and Mexico’s Mexbol (-0.1 per cent) during April-December 2011.
The situation was better on the United States’ Dow Jones and France’s CAC indices, with average daily returns flat at 0 per cent during the nine-month period. However, daily volatility on most of these indices – Dow Jones (1.4 per cent), CAC (1.8 per cent), Hang Seng (1.6 per cent), Nikkei (1.5 per cent) and IBOV (1.6 per cent) -- was higher than on the Indian benchmarks.
However, short-term trading on the Sensex and Nifty was not always a faux pas from the perspective of returns, with ample scope for making a quick buck. In 2009, daily returns on the Sensex and Nifty averaged 0.2 per cent, though volatility on both indices was a tad above two per cent. During this year, the Sensex rose by 77.01 per cent and the Nifty gained 71.5 per cent.
The daily returns on domestic exchanges was better than the trend on the Dow Jones (0.1 per cent), CAC (0.1 per cent) and AS 30 (0.1 per cent) and in line with the daily returns on the Brazil, Singapore and Hong Kong stock exchanges.
It has never been easy to make quick gains on the stock exchanges, as per historical data. Daily returns on global exchanges have ranged between -0.2 per cent and 0.4 per cent since 1995, with the exception being the AS 30 in 2004, when the daily returns averaged 1.6 per cent.
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