Wild swings in stock markets this year match 2008 financial crisis levels

Topics Market volatility | Sensex | Nifty

In the first half of 2008 and 2009, there were 45 and 39 trading sessions, respectively, when the Sensex had witnessed intra-day swings of more than 3 per cent
This year has been nothing short of a roller coaster for those dealing in the stock markets. Consider this: The benchmark Sensex has seen daily swings of more than 3 per cent — the difference between day’s high and low — in 27 of 123 trading sessions this year, so far. That’s more than a fifth of the sessions. In comparison, such sessions in the first half of the past 10 calendar years have been a cumulative 22.  

Last time, the market witnessed such wild swings was during the 2008-09 Global Financial Crisis (GFC). In the first half of 2008 and 2009, there were 45 and 39 trading sessions, respectively, when the Sensex had witnessed intra-day swings of more than 3 per cent. The source of volatility this year has been the Covid-19 pandemic and the subsequent lockdowns and economic shocks.  Experts said volatility is the inherent nature of the stock markets and the relative calm seen over the last few years was more of a deviation from the trend.

“There was a lot of volatility during the 2008-09 Global Financial Crisis. But after that, volatility had been muted in the global equity markets. We saw a period of low volatility between 2010 and 2019. However, Covid-19 has upset that. What happened this year is common; the unusual period was 2009-2019,” said Saurabh Mukherjea, founder, Marcellus Investments.

 

Volatility in the Indian markets this year has matched that in the US. The Dow Jones Industrial Average, an index of top 30 American companies, has recorded 33 sessions of more than 3 per cent swings. “The situation is unprecedented because we never had a situation where we had a pandemic for four months without either a cure or some preventive measures. 
That’s why the markets are more volatile because they don’t know which way to go. Most likely, volatility will continue until some cure is found for Covid-19 and the US elections are over,” said U R Bhat, director, Dalton Capital India.

While high volatility is fertile ground for traders, experts say it can discourage long-term investors. Bhat believes there may be little respite from high volatility in the second half of CY20 with the US elections and uncertainty over corporate earnings and economic growth. “And, there are events other than Covid-19, such as the US-China dispute and the US elections, which can be a source for more volatility,” he said.

“Volatility will remain elevated in the remaining part of the year. The market could go up and revisit earlier highs, but the higher it goes, there are chances of a steeper fall. 

Because there is enough bad news that could hit the market on account of this health crisis and the lockdown. It could be anything from bad economic data, to some big company failing or some bad news from the international market. Any of this might end result in bouts of volatility,” said Amar Ambani, president and institutional research head, YES Securities.


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