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The Domino effect

Even by recent standards, stock markets in India — and practically everywhere else — are demonstrating extreme behaviour. But last week’s price movements may well be a harbinger of what could follow in the weeks ahead. On August 6, the Sensex closed at 14903. The next day it ended at 14932.

These two might have indicated relative stability. After all, even Indian markets are getting used to unpredictable price swings up to a point at least. On Wednesday, the Sensex zoomed to 15307, a gain of 375 points but during the last two days, it lost 439 points, closing the week at almost the same level as at the start of the week.

As much as the volatile stock indices movements, it is the causes that are driving the financial markets everywhere that have attracted plenty of attention. It is true that in an era of globalisation external factors count but whether they should matter as much as they apparently do at this moment is a matter worthy of deeper study. In any case, not all explanations concerning the financial markets can be rationalised. Then there has been the practical problem of anticipating trend movements, leave alone day-to-day fluctuations with a reasonable degree of accuracy.

The latest volatility is attributed to troubles in the U.S. credit markets, which have spilled over into the stock markets. As Wall Street reacted adversely all other markets jncluding the European as well as Asian bourses fell. However, it has not been a one way movement all the way as the Sensex movements of last week showed.

C. R. L.

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