Equity market volatility soars to record high in '08: Survey

Volatility in the country's equity markets touched record levels in 2008, which is also the highest among global bourses, the Economic Survey stated on Thursday.

"The volatility of weekly returns of Indian indices increased in 2008 and was even higher than that of indices outside India, such as S&P 500 of USA and Kospi of South Korea," the pre-Budget Economic Survey 2008-09 tabled in Parliament on Thursday showed.

It pointed out that the capital market scenario in 2008 should be seen in the backdrop of heightened uncertainties triggered by the international financial crisis, slowdown in the global economic growth, fluctuations in international food, commodity and fuel prices and volatility in overseas financial markets.

The government has taken steps to ensure soundness and stability of the Indian capital market and has initiated various regulatory measures in this regard, the survey said.

". . . The regulatory measures initiated during the year (2008) were aimed at ensuring the soundness and stability of the Indian Capital market," it noted.

In comparison to 3.83 per cent volatility on weekly returns in the US for its bellwether index S&P 500, 4.19 per cent for South Korea's Kospi, India's benchmark index Sensex witnessed a volatility of 4.57 per cent.

According to the survey all major indices of the Indian capital market witnessed high volatility. The National Stock Exchange benchmark Nifty saw a volatility of 4.30 per cent, for BSE-500 4.68 per cent and 4.89 per cent for Nifty Junior.

The volatility in the Indian markets have increased significantly on a year-on-year basis as well as the 30-share index Sensex saw fluctations of 3.17 per cent in December 2007. Similarly, at the end of 2007 S&P 500 and Kospi had a volatility of 1.28 per cent and 2.17 per cent respectively.

The year 2008 started on a bullish note for the Indian capital market and saw the two benchmark indices scaling new historic peaks of 20,873 points and 6,287 points on January 8.

However, this momentum could not be sustained and the indices recorded significant downtrend in line with the decline in all the major international indices during the second half of 2008, the survey said.

During 2008, the BSE Sensex and Nifty indices declined by 51.8 per cent and 52.4 pet cent respectively.

"The domestic stock markets exhibited an upward trend from mid July to the first week of September 2008, but weakened thereafter and recorded losses till end December 2008.

This was attributed to volatility in international equity markets by foreign institutional investors and slowdown in domestic activity," it noted.