Indices fail to reflect market mood

Indices fail to reflect market mood
GEORGE MATHEW & R L PAI

MUMBAI, FEB 19: Did the market fall last week? Yes, if you're following Sensex. No, ifyou're looking at BSE-100 index. While stock volatility and marketmanipulation give a tough time to the investors, another vexed issue hasstarted confusing them. The divergent movements of different stock marketindices -- giving different pictures on the stock market trends -- have madeinvestors nervous with some even doubting index manipulation.

While the much-fancied 30-share Sensex (BSE sensitive index) crashed by211.91 points to 5721.65 last week, the BSE-100 index -- also from theBombay Stock Exchange -- posted an impressive gain of 263.93 points at3679.50 during the same period. Going by the Sensex one can assume that themarket is in the grip of bears, but the BSE-100 index movement indicatesthat the market is in a bullish phase.

The same story is repeated on the National Stock Exchange (NSE). Niftyindex (S&P CNX Nifty Index) of the NSE moved down sharply by 38.20 points to1717.80 last week. However, the S&P CNX-500 index shot up by 111.94 pointsat 1653.86 points from previous week's close of 1541.92 points. ``This widedifference in index movements raises several questions. Are some shareswhich constitute Sensex and Nifty manipulated? Is there excessivespeculation in these index-based shares?'' asks an investor.

``There is something wrong somewhere. It is difficult to believe thatshares constituting Sensex and Nifty crashed while those of BSE-100 and S&PCNX-500 shot up last week. If this is a deliberate exercise, it is time thatthe SEBI reconstituted Sensex so that investors are not taken for a rideonce again. It is clear that excessive speculation is going on in some indexshares,'' he said.

However, another school of thought attributed this confusing index movementto unloading of huge long positions built in several key counters. ``TheSEBI move to impose additional margins on highly volatile shares and cut theexposure limit of top brokers forced many operators to reduce theirspeculative build-up. This led to selling in Sensex-based speculative scripswhile other scrips in B1 and B2 groups moved up. This is not a healthytrend,'' said a fund manager.

Some of the scrips in the indices have higher weightage than needed. As aresult, the index -- Sensex witnesses this phenomenon almost every day --dances to the tune of such scrips. Infosys, for example, has a weightage ofaround 20 per cent in Sensex. What needed for operators is to rock Infosysto manipulate the Sensex. On the other hand, Infosys is not in the bigleague in terms of turnover and equity capital. Its trading volume is alsosmall when compared to others.

The market regulator has already asked the BSE to review the composition ofSensex. SEBI now wants the BSE to either make Sensex more broad-based orensure that the weightage is evenly distributed. Now when manipulators wantto keep the market artificially depressed, they sell some index stocksheavily and vice versa. ``It is clear that Sensex does not represent thetrue picture of the market. Two or three scrips are now dominating it,''fund managers said.

Chaos on new issue listing day mood
MUMBAI: Manipulators are having a field day when new issues get listed on the stock exchanges. With no rules and regulations on the first day of listing, it's total chaos with the newly listed scrip jumping up and down. There's no circuit-breaker (trading stops when the price falls/rises by eight per cent) on the first day of listing. There's no pre-opening session to determine the correct price of the newly listed company. As a result, one new scrip jumped from Rs 650 to Rs 1,500 on the listing day.

Another scrip fell from Rs 400 to Rs 300. ``The SEBI and stock exchanges should come out with a system or guidelines for listing of a new scrip. What's the rationale in not having circuit-breaker on the first day? It's like giving the key of the locker to robbers,'' said a fund manager. Another future worry for the SEBI will be the slow revival of illegal gray market for new issues. With the primary new issue market showing signs of revival, illegal deals are done at a premium before the scrip is listedon the stock exchange.