Sensex rise on lower volumes is a cautionary tale
Analysts say such ascends are not sustainable
Sanat Vallikappen/Mumbai
The low volumes on which the Sensex has been rising in the past three weeks is a cause for concern, say experts. The Sensex’s rise from the 7700 to the 8,700 level in the latest rally (which seems to have taken a negative turn in the past two days) has not been supported by rising volumes.
On the contrary, the daily average market turnover between the beginning of the rally (beginning of November) and now has been Rs 26,102 crore, compared with Rs 30,678 crore in October. Experts believe that this is not a healthy sign and that the rally is not sustainable.
“It is not a very encouraging sign when markets rise on low volumes. The earlier rallies had seen a lot of action in the B group and penny stocks, but this one is concentrated in frontline stocks. Broader market participation has died down and it will be a tricky phase of the market for quite sometime,” said Saumil Trivedi, a market analyst.
The rally was in contrast to the Sensex’s 1,555-point rise from May 2, 2005 to August 22, 2005 when it closed at 7,750 points. The latter was sustained by a sharp gain in volumes on the BSE, as indicated in the chart.
“The lower volumes are on account of Indian investors staying away from the market as they burnt their fingers in the preceding rally (from the 7700 to 8800 levels between the end of August and beginning of October).
The fact that markets moved up despite low volumes is a clear indication of demand outstripping supply,” said Deepak Mohoni, managing director, trendwatchindia.com.
Some analysts have predicted a sharp downward turn and say that if the Sensex breaks below 8470, there is a lot of money to be made by shorting the stocks that comprise the index.
After six consecutive days of gains, the Sensex took a negative turn on Monday and Tuesday, shedding 150 points or 1.75%. It closed at 8,534.97 points on Tuesday.
Analysts believe that the current rally from the beginning of November has been concentrated in Sensex stocks, with Bajaj Auto, Reliance Industries, ACC, Cipla, Satyam Computer, Bharti Tele-Ventures, Mahindra & Mahindra and Maruti Udyog already touching or inching near their all-time highs. Analysts also pointed out that the current rally is only in sectors like information technology, automobile, capital goods and banking.
