Date:29/02/2008 URL: http://www.thehindubusinessline.com/2008/02/29/stories/2008022952931700.htm

Back Muted pre-Budget sentiment positive

Trader, investor disinterest may reduce B-day volatility

BL Research Bureau

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The lack of euphoria and pre-Budget frenzy in the market this year is a positive as we go into Budget day.

market swings

Budget days in India are typically marked by violent market swings as investors assimilate various facets of the Union Budget document and try to gauge the impact on various stocks as well as the market as a whole.

Optimism ruled high in the beginning of 2008.

The consensus expectation in the first week of January was that the stock markets would be strong in the first two months of the year and some weakness may set in from March.

But turbulence in overseas markets caused by fears of the US entering into a recession caused a global rout in equities in the third week of January, leading to deep erosion in the stock prices.

The sharp fall in the mid and small-cap stock prices, especially those with derivative instruments attached to them, resulted in most of the novice traders retreating from the markets as brokers had to force them to cash-in on their positions, at losses.

Low Turnover

It appears that these investors have not yet ventured back to the stock markets and are preferring to stay on the sidelines.

This is reflected in the plunging turnovers in both the cash and derivatives segment on the BSE and NSE.

The average cash turnover on NSE in February has almost halved over that recorded in January.

Daily derivative volume on NSE is also down about 30 per cent from the previous month.

The other indicator of trader disinterest is the low build-up in the open interest in NSE.

The open interest in February struggled to move above Rs 80,000 crore while it crossed Rs 1,30,000 crore in the month of January.

The fact that the February contracts expired the day before the Budget day is also a factor that will result in less number of outstanding contracts in the derivative segment.

Lack of trader and investor participation could reduce volatility on the B-day as the possibility of panic selling by those holding on to leveraged position is lower.

Unfriendly measure

The only risk at this juncture is from a concerted selling by FIIs, induced by some unfriendly measure in the Budget document.