Those that panicked and sold at first plunge have invariably been left to lick their wounds two days later.
Buyers seem to be waiting to lunge for stocks at every Sensex plunge.
MUMBAI: If there is anything to be noted from the "sharp corrections" of the stock market during the past two years, it is that they always get as sharply, well, re-corrected.
Those that panicked and sold at first plunge have invariably been left to lick their wounds two days later.
Does this mean this has become a trend? Don't bet on it.
After the 790-point fall seen in the three sessions till Monday, the Sensex has recovered nearly 400 points in just two sessions.
This has been the case with half-a-dozen fast falls that the bourses have seen in the past two years.
On Wednesday, the second anniversary of the May 17, 2004, crash, the Sensex rebounded by 344 points, its largest single-day gain in two years. The index had plunged 565 points, its second-largest single-day drop, on May 17, 2004, as loquacious leftists in the UPA government unsettled the markets.
The second triple century this year by the Sensex on Wednesday has added Rs 97,000 crore to investor wealth.
Back to the bouncebacks: Between May 14 and 17, 2004, the index shed 895 points. In the next two sessions, it recovered 501. Between April 12 and 13, 2006, the fall was of 425 points. Recovery: 584 points in the next two sessions.
Between April 24 and 25, 2006, the decline was 383 points. Recovery: 292 points next day.
"There have now been three instances of a sharp fall followed by an even sharper recovery in the last four weeks. This is unprecedented," says Deepak Mohoni, managing director of trendwatchindia.com.
Technicals watchers consider such high levels of volatility as symptomatic of "market tops".
"In the last two instances preceding this week's, the rebounds have led to new highs. The current ricochet is impressive, but it still remains to be seen whether we will get a new market high as in the other two instances," Mohoni said.
Wednesday's close at 12217 points means that the market is still about 400 points away from the peak of 12612 points reached last week.
Mohoni said historically, such sharp declines have not always been met by recoveries like this, and larger and longer declines have followed. "The risk we run now is that one of these declines may just not bounce back," he said.
A contributing factor to Wednesday's gain, said Deepak Jasani, head of retail research at HDFC Securities, was the stabilisation of the global equity and metals markets.
"But volumes being lower than normal indicates that sellers were withholding stocks to jettison later," he said.
The combined turnover in the cash market on the Bombay Stock Exchange and the National Stock Exchange was Rs 12,647 crore, compared with the May average of Rs 14,594 crore. FIIs were net sellers by Rs 1,261 crore on Monday and Tuesday, while mutual funds were net buyers by Rs 1,128 crore.
—With inputs from Kishor Kadam.
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