Saturday, December 30, 2006 - How the Sensex swung through the year


Click Here to Get Free DON DVD

2006 was a rocking year for the stock markets. And a rocky one too! Not only did the Sensex show a whopping jump of 47%, it also demonstrated the greatest volatility in the past five years.

An ETIG analysis reveals that the annualised volatility coefficient (AVC) of the Sensex stood at 26% for 2006, compared to 17% and 25% during 2005 and 2004 respectively. The benchmark index was significantly less fluctuating in 2003 and 2002 also, with AVC of 19% and 17% respectively.

The bourses witnessed sharp see-saw movements during the year, with a continuos upward movement from January to May, a sudden crash from May to June and then again, a strong recovery continuing throughout December.

On one hand, the Sensex touched an all-time high of 14000, while on the other hand, it also witnessed its single largest-ever fall in one trading day since 1991. With Indian markets getting more globally aligned, this year witnessed sharper reactions to global macro-economic changes and domestic policy measures.

Annualised volatility indicates the amount of fluctuations in the market movements during the year. The higher the volatility, the riskier it is to invest in the short term. The annual volatility is calculated by taking the standard deviation of daily returns for either the stock or the index and then annualising it over the total number of trading days during the year.

Among the Sensex stocks, Infosys and TCS were the least volatile with AVC of 31% and 32% respectively. Reliance Communications, during its 10-month stint on the bourses, exhibited the maximum volatility of 82% since listing. Tata Steel, in news for its Corus bid, was the next most volatile stock with a coefficient of 48%, followed by Hindalco and Reliance Industries at 43% each.

Twenty-five out of the BSE 100 stocks reported AVC of more than 50%, with United Spirits topping the chart with 83%. Asian Paints was the only stock to move in sync with the Sensex, with an AVC of 27%, while Sun Pharma was slightly worse off at 29%. Smaller companies were even more unpredictable during the year, with the BSE Small-Cap and BSE Mid-Cap indices reporting AVC of 28% and 27% respectively.

On the sectoral front, the metal sector was the most fluctuating of all with an AVC of 41%, while the healthcare sector was the least volatile with a coefficient of just 24% during the year.

Source :