In a span of 194 days, from October 28, 2005 to May 10, 2006, the BSE Sensex rose from 7,686 to 12,612, a gain of 4,926 points. It then fell very fast to a level of 8,929 on June 14, 2006, i.e., a loss of 3,683 points in 35 days. It again reached a level of 12,928 on October 16, 2006, a gain of 3,999 points in a span of 124 days. Subsequently, the Sensex crossed the 13,000 mark. Figure 1 shows the movement in the Sensex for the period August 21, 2003 to October 20, 2006.
It has been observed that during the run up of the BSE Sensex to a level of 12,612 on May 10, 2006, various BSE sectoral indices also demonstrated similar patterns. There was a convergence of all the indices and when the market fell, they all fell simultaneously. It was further expalined that initially, all the indices moved up in their own momentum in accordance with their performance. Then with time, each caught up with the other and moved together indicating `herd' behavior. Indices that were initially slow on the rise, got caught in the vortex and rose fast. When they fell, all fell together, but the fundamentally strong ones recovered faster. The initially slow moving ones, fell faster, and have shown slow recovery. Their market perception was weak, but rose with pure market sentiment. An example is the metal index. Indices that have dominated the Sensex like Bankex, IT, Consumer Durables and Tech have recovered faster after the fall. |
