Markets lose steam in December chill

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Mumbai, Dec. 28: Newbie market watchers may have been a bit disappointed on Tuesday — not because the BSE Sensex was down at the end of the day, but by the magnitude of the move. The Sensex was down 3.51 points — just 0.02 per cent of its level during the day. The index kept oscillating up and down from over yesterday’s closing level, but never by a substantial amount.

The move also came on very low volumes – the total trading volume on Tuesday was just over `1 lakh crore. This is almost 30-40 per cent lower than the trading volume on a typical November day. Tuesday wasn’t an isolated case. Since December 15, there has only been one session where the BSE Sensex moved by over a 100 points.

The slowdown is now an annual phenomena, but it is very recent say older brokers. “I don’t recollect such a situation in the past 20 years,” says Mr Deven Choksey, a stock broker. “This is because of over-dependence on foreigners. Local investors don’t come in unless there is momentum in the markets as they are not long term players,” he adds.

December also happens to be the period when a large number of market participants go off on vacations. “Most foreign banks and investors have a mandatory two week paid leave that all employees need to take,” says an analyst working with a European brokerage. He is on a block leave — from December 16 to 31 — with an auto-reply on his email inbox. Most of his office colleagues are also out, with the exception of a handful of traders, he says. “Since most of the foreign investors are also on vacation at this time of the year, we also take our breaks accordingly,” he adds.

As foreign investors now account for a large chunk of the Indian stock market, their temporary exit also puts brakes on action. This proportion has become more significant in the recent years. For instance, foreign investors have so far invested a little over $100 billion in Indian stock market, of which $20 billion has been invested this year. Since the majority of shares are owned by the government (in PSUs) or promoters and are off the market, this represents a large chunk of the traded shares.