The year 2006 was a rocking one for the stock markets. And a rocky one too! Not only did the Sensex show a whopping jump of 47%, it also demonstrated the greatest volatility in the past five years. Thus, in recent times no year other than 2006 can provide a better insight to Sensex volatility. This article analyzes the major factors of volatility like the Foreign Institutional Investors (FII's), Mutual Funds, macroeconomic policies, company announcements, their quarterly and annual results, global market and interest rates. Effects of these factors have been observed directly with the 9 to 11% change in share prices of BSE 30 companies. The analysis of the Sensex has shown that May 18, 2006 was the "Black Day", marking the biggest Sensex fall in 150 years.
The year 2006 was no less than a roller coaster ride for the Indian stock market. It was one of the most memorable years in terms of the benchmarks attained, dramatic crashes and great heights reached. In fact, the Sensex witnessed an appreciation of 47% during the year as revealed by Economic Times Intelligence Group (ETIG) analysis. It also demonstrated the greatest volatility in the past five years. No major indices in the world showed a volatility of more than 5% in a single day while in India, May 18 and July 11 witnessed an intra-day change of 6.8 and 6.9% respectively. Narasimhan has mentioned in his article (The Hindu, dated January 8, 2007), 25 out of the BSE 100 stocks reported Annualized Volatility Coefficient (AVC) of more than 50%.
The past performance of the market has left even the most experienced traders bereft of the ability to predict the stock prices or for that matter, the market movement on the whole. Besides, the Indian stock market is continually being influenced by the global trends and hence it cannot be analyzed in isolation. There are several factors that affect the volatility of the market. Most of them have been studied individually or in combination of factors affecting the market. |
