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