Investors churn scrips amid the volatility

The recent market uptrend followed by a slippage have helped investors reallocate their portfolios.

Operators and investors alike have utilised this post-Budget volatility to reshuffle their funds.

According to brokers, they booked profits in high valuation sectors (where prices had appreciated significantly) and entered sectors with relatively lower valuations.

While the recent market fall has been attributed to low foreign institutional investor (FII) inflows, the lack of overall buying at higher levels coupled with increased operator selling has played a big role in the 'correction', they added.

The benchmark Bombay Stock Exchange (BSE) Sensex appreciated by 3.53 per cent between January 3, 2005, and March 8, when it hit an all-time high of 6,915 points. Subsequently, it has fallen by 5.85 per cent to 6,510.74 on March 28. On a year-to-date basis (from January 3, 2005), the Sensex has fallen 2.53 per cent.

The Sensex had recorded a pre-Budget gain of 0.52 per cent and a fall of 3.13 per cent up to March 24. Data show that the BSE Capital Goods Index, which was the biggest gainer (11.84 per cent) in the current calendar up to the Budget, has fallen by almost eight per cent from the Budget day to March 24.

The BSE Metal Index, which had gained 5.55 per cent, fell by 2.48 per cent, while the BSE Bankex Index, which recorded a pre-Budget gain of 4.32 per cent, has lost only 1.34 after that.

These three sectoral indexes have recorded the biggest gains on the BSE on a year-to-date basis. The pharmaceuticals sector (BSE Healthcare index), which was the biggest loser on a year-to-date basis, dipped 15.16 per cent up to the Budget because of some selling pressure in a few heavyweight scrips. It subsequently lost only 0.70 per cent.

The BSE Auto Index was the other big loser, falling 10.42 per cent as investors sold on worries of higher input costs and fuel price hikes.

Said a dealer from a domestic brokerage house, "The recent rise and fall with intermittent volatility have also seen many large institutions and investors churning their portfolios and reallocating funds." Brokers added that the market is also usually volatile ahead of the expiry of the month's derivatives contracts.

Moreover, while slower FII inflows have been blamed for the fall in the market, figures do not entirely justify this as mutual funds have stepped in to fill the gap.

This adds up to the theory that domestic operators have utilised the sharp gains in the market to book profits and then to reallocate their funds.

FIIs made net equity investments of Rs 12,187 crore in the 45 trading sessions between January 3 and March 8, bringing their average daily net purchases to Rs 271 crore.

During this period, domestic mutual funds made net purchases worth Rs 1,010.89 crore at a daily average rate of Rs 22.46 crore.

The FIIs have subsequently put in another Rs 4,952.02 crore in 11 trading sessions at a daily average of Rs 228 crore between March 9 and March 23 (excluding the Bharti Tele-Ventures offmarket deal worth Rs 2,441 crore), while domestic funds have made net purchases worth Rs 671.19 crore at a daily average rate of Rs 61 crore, according to data put out by the Securities and Exchange Board of India.

Market sources said that FII inflows may have slowed down but the overall picture does not suggest any great eagerness to pull out of India.

"It is obvious that it is not lack of liquidity, but fears about the future that triggered the recent fall," they added.