Topsy turvy no straights on the curvy - that's the market tale over the past few days.The rollercoaster ride has sent investors and traders into a whirling frenzy. As the sensex see-sawed throughout the entire last month, there are some pertinent investor related questions that arise. The question is what brings about these swings and how they affect the markets in general and the investors in particular. The sensex movement during the week ended May 12th is a classic microcosm of this volatile market phenomenon.. But a first a quick look at the stock markets dynamics during the said week..

The week witnessed mixed trends in the markets.There was a firm opening on the first day of trading on 8th may.This was in wake of the positive sentiments in the markets after the policy announcements by the finance minister the previous week.This week the markets were more concerned with the drought situation in the North Western parts of the country. The sentiments were weak and quickly the markets turned volatile There was a steady upward movement during the first session of the day but later there was a downturn and the BSE sensex settling at a loss of 230 points on Monday. This was led by a crash in Infosys scrip with the rumors of it seeking funds for domestic and overseas acquisition. This was followed by a crash in all other tech stocks. Grasim Cements hit the lower circuits in wake of drought conditions since it has it's major cement markets in western and northern parts of the country. Zee Tele scrip moved upward in lieu with positive expectations about the yearly performance but later lost ground towards the close of the session.FIIs and operators turned sellers booking profits at higher levels. Retail investors also followed the lead thereafter.

On 9th may, markets recovered from the previous days loss gaining 115 points. This was mainly because of squaring of the positions and hectic bear covering being the last trading day at the NSE and also due to fresh FII buying interest. Zee announced it's yearly results in the later part of the day. By then the scrip had already touched the upper circuit at 12%. IT scrips remained volatile.There was a selling pressure in the first half of the day but buying interest emerged in the later half. Infosys made a comeback touching 7925 levels. This was due to FIIs buying at lower levels.Telecom and Media stocks also gained ground with fresh buying interest towards the close of the session.Mixed trends were observed in FMCG and Pharma sector.

Markets again lost ground on 10th may with selling pressure resuming from FIIs. The situation was aggravated by the depreciation of the rupee to an all-time low of 44.05 and also due to the fall of 84 points at NASDAQ on Tuesday.The markets were volatile in the morning and moved in positive and negative territories, before turning weak once again in the second half of the session. The major scrips in all the sectors moved down. Massive selling pressure was observed in the second session of the day. There was a clear absence of fresh institutional and speculative buying. The overall undertone in the merket was weak. Zee Tele hit the lower circuit at 12% as the investors attributed their profits mainly from the sales of their programme library to ATL. Removing those figures the overall performance of Zee for this quarter was lower than previous year.

The 11th of May once again saw a drastic fall in prices with the sensex crashing over 200 points. To sum up we saw  very volatile trading sessions this week.The reasons were natural calamities like drought, poor performance of one or two companies like Zee Tele which created a negative sentiment in the market, currency fluctuations, impact of fall at NASDAQ and Asian markets and also the speculation.

But more importantly what are the implications of such volatility on markets and investors. The natural outcome of this volatility was the widespread panic in the market. Short selling was evident all around. FIIs and other institutional investors took advantage of the situation booking huge profits by selling at high prices. Subsequently they were followed blindly by other small investors. This had resulted is massive selling pressure in the market. The emphasis on fundamentals was lacking in the later stages and even the major scrips have lost ground. Investors have seen their wealth erode by as much as 17% in this phase and conservative estimates have put the wealth erosion at over $90 billion since the Union Budget. The markets are led by big-wigs and soon we shall see them turning buyers at low levels.

From an overall market point of view this could be looked upon as a natural correction for the markets from its highs of a few months ago. But more importantly the retail investors are being badly hit by this volatility. The first sign of diminishing retail interest is the falling oversubscription rates for IPOs. The second distinct sign is the falling collections and increasing redemptions of mutual fund schemes. But then are retail investors so important? The answer is that they are. They are crucial players in the capital allocation IPO market. They are the actual providers of risk capital rather than mere investors or speculators. Continued volatility in the markets has helped little in this cause. And if this volatility continues, we can expect another desertion from the retail investors.

Subhanshu Gupta