Let’s take a look at the NSE. The S&P Nifty was at 1712.7 on 01 March 2000, which went down to 1528.45 on 31 March, 2000, a fall by 10.8 percent. In April, the Nifty remained highly volatile, varying between 1624.65 and 1359.45. In May, the lowest of Nifty was 1224.4.

Needless to say, the Nifty is moving in tandem with the Sensex. The two indices have a correlation of 0.99 for the three months starting 01 March 2000 to 25 May 2000. If the returns of the two indices for the same period are regressed, it gives a slope of 0.85. Considering these two factors, with the given value of one index, the value of the other can be predicted with sufficient accuracy by substituting the regression equation, where the Nifty value is the dependent variable and the Sensex value the independent variable.

To understand the correlation better, consider this. April was very volatile. On April 4^th, the Sensex lost by more than 7 percent, the worst fall of the last few months. Nifty also followed shedding 6.9 percent. However, for the rest of the week, both the indices showed a positive trend. On the BSE Settlement day of that week (April 7^th), both BSE and Nifty gained 7.24 percent and 7.17 percent respectively. This gain was backed by the rise in prices of the FMCG and Pharma stocks. On the previous day, the government had announced the extension of tax breaks to foreign funds registered in Mauritius. This led to an increase in FII buying. The increase in the Infy scrip on Nasdaq was also responsible for the rise.

Normally, both the indices record a fall on the settlement day of BSE, except in cases as mentioned above. On the other hand, on the settlement day of NSE, the BSE gains and the Nifty loses. This clearly shows the independence of Sensex vis-à-vis Nifty. Whereas, the Nifty movements are a lot dependent on the Sensex.

However, there are certain instances when the two indices behave differently. When the rise in Sensex is very marginal, say below 0.6 percent, the Nifty records a fall. And this usually happens on Tuesdays, the settlement day for NSE. On 21 March, when the Sensex gained 0.6 percent, the Nifty recorded a fall by 0.36 percent.

Another case is where the Sensex loses points while the Nifty gains. Take the case of 20 April. The previous day had seen selling pressure by FIIs and both the indices closed lower. The next day however, the first half was bearish, but in the latter half, the indices picked up. But at the close, while the Sensex shed points, the Nifty gained.

One may then ask, so what if there are exceptions? The answer is simple. Make money. If the Sensex closed lower on April 20^th, one could have bought shares on the BSE and sold for a profit on the NSE. Take the case of Infosys Technologies. The scrip closed at 7556.20 on the day on BSE. The same day’s closing on NSE was 7603.55. A clear profit of Rs.47 per share. Same is the case with Lanco Industries. The scrip closed at Rs.1090/- on BSE, while the same on NSE was Rs.1125/-. Similarly, on Tuesdays, when the NSE closes lower, one could buy on NSE and sell on the BSE. Though the same logic cannot be applied on BSE settlement days since both the indices record a fall. To sum up, even though the markets are dull, exceptions can still help you make money.