Sunday, November 26, 2006

Indian mkt most volatile; but investors happy

It pays to take risk -- even in stock markets. Indian stocks might be the most volatile in the world, but returns for investors are also best among all the leading markets globally, including the US, UK and a number of Asian and European countries.

According to an analysis of the daily return and volatility in benchmark indices of major global markets over the past one year, investors on the Dalal street have reaped highest returns as compared to their global peers.
The Indian market has given a higher return than most of its counterparts despite an equally high level of fear factor -- as measured by volatility in daily market movements.

The Bombay Stock Exchange's 30-share benchmark index Sensex has given an average daily return of around 0.2 per cent over the past one year, which is twice the return given by its closest rival, the South African index.

All other major world stock indices including the US, UK, France, Hong Kong, Singapore, Australia, Malaysia, Mexico and Japan have given a daily average return of below 0.1 per cent.

Notwithstanding the high level of gains from the market, Indian investors are still the most worried lot as the volatility ratio of key stock index is the highest here.

The good news is daily average volatility has been on a gradual decline over the past few months after surging to as high as 3.25 per cent in June this year. It has been hovering around one per cent level over the past couple of months, except for a few days when it went up to nearly two per cent.

The volatility ratio had surged to an all-time high of 12.55 per cent on May 22 -- the day when Sensex recorded the highest intra-day fall of 1,111 points.

However, the current level of volatility in the Indian market is still higher than all the other major markets. Other than India, only Mexico, Brazil, Japan and South Africa have recorded an average daily volatility of more than one per cent over the past one year.

The volatility gauge has been below one per cent in relatively mature markets like the US, UK, France, Hong Kong, Singapore, Australia and Malaysia.

An analysis of the volatility index of BSE Sensex during the April-September period in 2006, shows it had peaked in the May-June period with values as high as 2.55 and 3.25. It then declined gradually on the back of strong FII inflows and improving investor sentiments.

Volatility dropped to 1.97 per cent in July and then to 0.67 in August. Since September onwards, it has hovered between 1-1.6 per cent.

"There was a general decline in volatility of major indices in September 2006 over the previous month. However, the Indian indices were comparatively more volatile over the previous month," market regulator SEBI said in its latest monthly report.

But a high level of volatility has not prevented BSE Sensex from outperforming the frontline indices of other major markets such as the USA, UK and Japan. The returns from Indian markets have outperformed other emerging markets of Brazil, Mexico and South Africa.


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