In recent months, the Bombay Stock Exchange (BSE)
Sensex has shown significant volatility. Starting from
a level of 15,794 on July 24, 2007, the Sensex
increased to 20,869 on January 9, 2008 and dropped to
15,760 on March 14, 2008. That is, over a period of around
seven and a half months, whatever was gained in terms
of stock market growth has been completely wiped out.
Figure 1 shows the movement in the Sensex from April 3,
2007 to March 14, 2008 and also its volatility. Table 1
provides data on the level of the Sensex on specific dates
and the number of days taken to reach those levels.
The recent fall in the Sensex has given rise to various
explanations, but the fact is a large amount of wealth of
households has been eroded. Currently, there is no
indication of sustained interest in the stock market and
some have hastened to add that the market is in a “bear
grip”. Some have blamed it on world economic slowdown
and recession in the US; others have blamed it on the
budget and also hints of domestic economic slowdown.
This article is in line with a recent contribution by
Datta Chaudhuri (2007)1 where the same was attempted
in terms of indicators of macro balance, herd behavior,
globalization and movement of funds between markets.
Some technical indicators are also discussed.
It has been explained in detail in Datta Chaudhuri (2007)
why the ratio of Market Capitalization (MC) to Gross
Domestic Product (GDP) is an indicator of the balance
between economic fundamentals and market
sentiments and why a deviation between the two can be
seen as presence of speculative activity. In Figure 2 the
value of this ratio is plotted for the period January 2000
to March 2007. |
