Domestic short-sellers are riding piggyback on thin volumes for the past few days, while foreign institutional investors (FIIs) are out of reckoning.
Sources say a close-knit group of stock brokers places majority of their bets during the last 60-90 minutes of trading after stock futures in the US open at 2 pm (IST). This is the reason why the market has been witnessing maximum volatility during the last hour of trading, they say.
For instance, the Sensex, which opened 324 points below the previous close, staged a 272-point recovery after 2 pm on Tuesday from its day’s low of 8,467 to close at 8,739. Before that, it traded in a narrow range.
A major spurt in trading activity involving shares of Reliance Industries, State Bank of India, Bharti Airtel, Infosys, Bhel, Larsen and Tubro and ICICI Bank was witnessed during the last hour.
Tuesday’s recovery, according to a stock broker, could be attributed to a massive short covering of positions by bears after the Dow Jones Futures index opened 172 points up from its previous close. “It has been noticed that over 40 per cent of the daily volume in the derivatives segment is generated during the last one hour of the trading session,” said the research head of a leading brokerage house.
The fact that domestic bear operators have established a significant control over the market can be gauged from the direction of the market, which is contrary to the net buying and selling of large institutions. For instance, the Sensex fell 252 points or 2.5 per cent on Monday even while FIIs and domestic institutional investors (DIIs) were net buyers in cash as well as derivatives segment. Also, other categories of investors, including retail and propriety, were net buyers that day.
A similar pattern was observed when the market recovered sharply on Tuesday, wherein FIIs were net sellers of Rs 323 crore, compared to DIIs’ net buying of Rs 105 crore.
Stock brokers say that the direction of the market is set by F&O bets of bear operators, who do not carry forward their positions. “Bears are playing the market on the fear psychosis of investors and they are fully aware that they can easily set the direction due to low volumes. Also, bears are using sophisticated technology, such as floppy trading, these days,” said a South Mumbai-based broker.
Floppy trading is nothing but a computer trading programme, which does not require a trader to punch orders himself. It enables the operator to take price advantage even if it is for a micro second.
