Equities to enter calm waters in July

After a volatile June, participants expect current month to be relatively less choppy for small investors.

Market participants, after given a thrashing by one of the stormiest months in the history of the domestic equity markets "� June, expect this month to be more merciful towards investors, while traders, in all likelihood, will continue to have a tough run on the bourses.

Thanks to interest rate concerns in the US, Europe and Japan, the month of June recorded one of the highest levels of volatility in recent years, which witnessed the four largest single-day point gains ever for both the major indices "� the Sensex and the Nifty.

"The markets are likely to trade in a narrower range in July than we have been seeing in the last six weeks," said C Jayaram, executive director, Kotak Mahindra Bank, which advises clients on the domestic equity markets.

Jayaram, like most others in the market, said July would be crucial to determining the short-term stability of the equity markets. "Whenever there is momentum, it is usually small investors and traders who try to ride it," he said.

"Many of them got burnt in the fall and are sitting on the sidelines right now, as is evident from the extremely low level of volumes this month. Since we have already bounced back from the 9,000 level on the Sensex twice already, most of the retail and trading participants will come into the market only if the 9,000 level is able to withstand selling pressure two or three times more," Jayaram added.

Of the 15 highest ever intra-day gains for the Sensex and the Nifty, seven came in June. In contrast, the month also witnessed nine of the top 25 all-time single-day declines in both the indices, pointing to the extreme volatility.

"Volatility was extreme last this because volumes were not even half of what they used to be even two months ago," said Ambreesh Baliga of Karvy Stock Broking.

"When there are not too many buyers and sellers, price movements tend to be much sharper than otherwise," he added.

While they rule out volatility pinching the investor, most participants still expect trading to get tougher in the coming weeks.

"While movements in either direction may be more limited, intra-day volatility will continue as there are no clear cues for the markets to follow. The issue of interest rates, too, is far from settled as the consensus is that Bank of Japan is likely to move away from its zero-interest rate policy, with the timing being determined by local political factors," Jayaram of Kotak Mahindra Bank said, adding "the European Bank too may use the strong growth numbers from the member countries to increase rates in the near term".

Shriram Iyer, head of research at Edelweiss Securities, said, "It is difficult to predict anything except saying that volatility will come down."

"It has been made clear that markets are dependent on a global pool of money, and it will continue to be affected by anything which affects the latter," he added.