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Lower participation makes it the St of Wild Swings

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Falling participation by various segments has made Indian stock markets extremely volatile. The unexpected surges and slides have left investors baffled.

The trading week ended on a disastrous note on Friday. The BSE Sensex slid than 2% or 455 points, to end at 19,760.30, while the Nifty fell 2.26% or 38 points to 5,985.95, a whisker away from the psychologically crucial 6,000 level on Friday.

In percentage terms, both indices posted the biggest single day fall in about 14 months.

Market-people promptly blamed the RBI-dashed hopes for a policy rate cut in June.

Economic growth data – related reports appear alongside – also shattered expectations that the RBI would cut interest rates next month.

Yet, even they admitted that the extent of Friday’s slide, just four days after a surge of over 1.5% on Monday, was unexpected.

“One of the reasons for the volatility could be that markets have become less liquid than earlier, in terms of depth,” said Deepak Jasani, head of retail research at HDFC Securities.

“Relatively small amount of buying and selling is creating a larger impact on the prices and indices.”

Market experts say that in addition to lower participation by retail and high net worth individual (or HNI) segments, even the number of institutional investors taking part in the market has been going down.

“The participation in equity is going down every day, reducing the depth in the market. When this happens, one single view can take the market in one direction as there is no counter view,” said Manish Bandi, vice president and fund manager at India Infoline Asset Management.

Experts also blame the lack of depth on the ‘call auction’ system for illiquid securities introduced in April by market regulator Sebi. Under this mechanism, thinly traded stocks should be traded only through hourly ‘call auctions’.

The system has taken a toll on the number of scrips being traded — volumes were down almost 11%. Depth in small and midcap segments has been impacted the most – for instance, 185 stocks out of 246 on the midcap index declined.

The top losers on the BSE Sensex were Bharti Airtel, GAIL, Jindal Steel and Power and ITC. The top gainers were Infosys and Sterlite Industries.

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