Stock Market Volatality & need to curb it

Mature markets in the developed world seldom show intra day variation in excess of 1% in the major indices tracking companies across sectors like the S& P 500. This goes to reflect the maturity of the market and reflects that the players are in it for the long run. This is helps the long term players to plan their actions and book profits.

Any volatality in these indices is clearly interpreted as a sign of some of the players need to show more than actual profits in the short term. This results in manipulated trades with out sound fundamental forces guiding the action (other than plain hood winking) resulting in Rapid-fire Trades. This may either bring loss to him or gain at other participants loss. This though an essential part to guide in price discovery at extreme situations, can not be allowed to continue for extended periods lest the serious players loose interest in the market. New entrants will also shy away; Or become gullible with the distorted view that money can be made in the market in a short period and look for such opportunities.

It is obvious now that the build up in some scrips prior to mega IPO issues was due to such unhealthy trades.Since then our markets have been extremely volatile and the regulator has done little to cool it. Given the low volume of free float and the concentrated action on the bourses from some sections of the stake holders, our tendency to believe in new stories and theories (read rumors) we are allowing a few to distort the market. This exposes the retail investor to greater risks. For the retail investor even the Mutual fund route is not with out risks for the mature operators also fall prey to such large scale manipulations.

We are now becoming aware of another new threat through FII like the Bear Stearns, who are compelled to exit our market to save their day in their home base. We are not aware how many more are to follow! That the local Derivatives segment helps them in clouding their actions is another story.

It is therefore essential for the regulator to step in quickly to stop such actions.

2 comments:

Multibagger stocks said...

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