Sensex on a hot tin roof

CHOPPY MARKETS PART-I

The last nine trading sessions have been the most volatile in the history of the Sensex. Never before has the Bombay Stock Exchange (BSE) index risen, or fallen, over 100 points on nine consecutive sessions.

The last time the index saw such violent swings was between May 4 and May 15, 2002, when the Sensex oscillated over 100 points over eight consecutive trading sessions.

While the volatility has been blamed on the controversy over participatory notes and the unwinding of futures positions, the numbers suggest that plain and simple profit-booking had a big role to play.

On most days between January 9 and January 14, even as the Sensex was bracing itself for the all-time high close of 6,194, sell orders were outnumbering buys.

On January 14, even as the peak was scaled, the traded volume fell 30 per cent in the cash market from the January 9 level and 40 per cent in the derivatives market. Rising indices on a lower traded volume are usually considered bearish signals.

During the period, the BSE's A group volume fell 30 per cent, and the Nifty volume dropped 26 per cent. Aggregate turnover on the BSE and the National Stock Exchange declined 26 per cent.

In the futures segment, the traded volume declined sharply as well. The volume in Nifty futures was down 42 per cent and down 52 per cent in Nifty options.

The traded volume in individual stock futures fell 18 per cent and a more modest 3 per cent in stock options.

The decline in volume in the top 10 traded stocks "" of which seven are Sensex and Nifty stocks "" also indicated a bearish outlook.

Hourly data show the traded volume in these stocks declined almost 40 per cent between January 9 and January 14.

Trading data for 10 days before January 14 show that profit booking had commenced well before the Sensex peaked, with sell orders outpacing buy orders.

This weakness was observed in Infosys Technologies, ONGC, Reliance Industries, Satyam Computer, Tata Steel and State Bank of India, in all of which sell orders were consistently higher than buy orders between January 1 and January 14.

In the case of non-index stocks like Gail, too, sell orders outpaced buys.

With sellers making their presence felt, the Infosys Technologies scrip fell from a high of Rs 6,100 on January 9, when the company announced its third-quarter results, to Rs 5,053 on January 23 when the Sensex shed 164 points.

On nine of the 10 trading sessions between January 9 and January 23, sell orders were higher than buy orders for Infosys. For Reliance, the ratio was 7:3, with sell orders dominating on seven of the 10 days.