IT index leaves behind Sensex meltdown blues

Even as the Sensex closed at 11,448.31 today, the highest in three months, the Bombay Stock Exchange IT index is the only sectoral index that has not only fully recovered from the impact of the recent market meltdown but has also gained.

The Sensex had reached a peak of 12,612.38 on May 10 and had slumped to 8,929.44 on June 14. Since then the Sensex has recovered 2,518.87 points or 68.39 per cent.

From the low of June 14, the IT index has gained as much as 38 per cent. The index, which had dropped to 3,043.53 on June 14 from a level of 4,138.93 on May 10, ended today at 4,191.85.

All other indices have also recovered much of the lost ground "" though their growth has not been as spectacular. The mid cap and small cap indices have gained over 28.5 per cent each over the June 14 level while capital goods index has outperformed the BSE Sensex by gaining over 33.37 per cent compared to the Sensex gain of 28.21 per cent.

The BSE Auto index gained the minimum ""20.18 per cent.

Does this mean that the market has recovered substantially and poised for heading towards new peaks? Analysts are divided on this.

Although the BSE Sensex has recovered 68.39 per cent since June 14, the overall market has staged only 53 per cent recovery. And except for the BSE IT index, which touched an all-time high on August 11, all other indices have made recovery between 40 and 53 per cent.

The partial recovery is reflected in poor trading volumes on the BSE and the NSE. From an all-time high turnover of Rs 21,447 crore in the last week of April, the market turnover had declined to as low as Rs 6,425 crore on August 8.

In fact, since June, the aggregate turnover on both the exchanges has fallen below Rs 10,000 crore from the Rs 13,000-15,000 crore range recorded in the first in the first five months of the calendar year 2006.

The fall in trading volume has been much sharper in small cap stocks compared to the BSE Sensex and S&P CNX Nifty stocks. The small cap stocks, which were going great guns in April and May with an average monthly volume of over Rs 24,000 crore, had recorded Rs 11,000 crore turnover in June and Rs 6,000 crore in July.

"This is a clear sign that the retail investors are staying away from the market after burning their fingers in the meltdown.

Unless they feel confident to come back, no one is sure of the future direction of the market," said a broker.