Introduction of Stock Market

Indian stock market like Casino

Up and Down in Indian Stock Market
Just like a casino, Indian stock markets are highly volatile and speculative. It is true that speculation is a feature of any market and perhaps more of stock market than others. Indian stock markets are most volatile in the world. The ratio between turnover and market capitalization shows the volatility of Indian stock market. As the table shows only in technology specific NASDAQ of US is this ratio higher than in India. More importantly marketing countries with the level of development comparable to India - Thailand, Malaysia and Mexico have ratios, which are only a small fractions of India ratio.



The table below consider another set of figures that just how much of the total turn over translate in to delivery. That is the actual change of stock from one hand to other. Just over 1/8th the trading on the Bombay Stock Exchange (BSE) and around 1/16th of all trading on the National Stock Exchange (NSE)results in actual transfer of shares from one hand to another. Clearly the rest overwhelming majority of all transaction are purely speculative in nature where brokers buy stock only to sell it soon or vice-verse.
     Speculative Activity in the Indian 
                    stock market

Item
BSE
NSE
Total Turnover
738584
1108570
Total delivery
90437
70388
% of delivery to turnover
13.2
6.4

 Source: SEBI



Relative volatility of Stock Market
Exchange
Monthly average in 2000
Turnover/ Mkt. Cap. Ratio (%)
Turnover
Market Cap
NASDAQ
1649.9
59845.9
33.4
India
47.9
169.5
28.8
Taiwan
82.2
4360.2
21.7
London
379.9
32176.1
14.1
Deutsche Borse
176.7
16640.9
12.6
NYSE
921.7
134764.7
8.2
Euronext Paris
88.7
17647.5
6.1
Hong Kong
31.4
7350.8
5.1
Dokyo
193.0
46604.8
4.9
Singapore
7.9
1946.8
4.9
Australia
18.9
4653.3
4.9
Thailand
1.8
448.8
4.6
Johannesburg
6.5
2594.4
3.0
Kuala Lumpur
4.4
1751.0
2.8
Mexico
3.8
1701.4
2.7
Note: All figures in US $ million, Indian figure converted at Rs.47 per dollar
Source: Business standard, April 2001


It is hardly surprising that such a market should witness high degree of volatility. The volatility is reflected in several fact. For one the ratio between the 52 week high price and the 52 week low price for most of India leading stock is in excess of 2:1 and some time even 3:1. In other words stock price doubling or even trembling with in a single year is common place.

Consider also the intra-day volatility of the BSE sensex the most commonly used measure of the state of the market. This parameter measures buy how many points index most with in a single day. The data is reveling.

It is all to evident that the volatility of the market as actually increased dramatically in recent years when the sensex gained or lost more than the 100 points. In 1999-00 this had gone up to 115 of 254 trading days. The speculation and volatility or tide up with and caused by blatant manipulation of stock prices by a nexus between brokers, corporate, exchange officials and political patrons. The market regulator SEBI has at best been a completely in effectual watcher and at worst guilty of winking at these nefarious activities.


Increasing volatility in Indian stock market
Year
< 100
100 – 200
200 – 300
> 300
Trading day
94 – 95
304
1
0
0
305
95 – 96
209
5
0
0
296
96 – 97
256
37
3
1
297
97 – 98
269
25
0
0
294
98 – 99
201
39
2
0
242
99 – 00
139
84
2.3
8
254
Source : Report on currency and finance 1999 – 2000

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