Though Dalal Street witnessed high drama on Wednesday with benchmark index Sensex swaying 600 points during the day and the 18,000-mark remains within reach, analysts believe the volatility may not augur well for the bourses.
The benchmark Index Sensex touched an all-time high of 17,953.07 points before slipping over 400 points during the day. However, the index regained most of the losses to close at Rs 17,847.04 rising about three per cent.
"Volatility is very bad for the market. The reason behind this was that the built-up rose very high.... the correction that was witnessed today was because of the huge expectation by retail investors in the F&O segment, " Premium Investments' S P Tulsian said.
While, Arun Kejriwal of Kejriwal Securities said, "extreme volatility is something one has to live with at these levels. One must understand that at this point though there is extreme optimism and bullishness there is underlying fear as well and one small instance or incident can rock the boat."
Analysts believe the volatility witnessed in the markets on Wednesday was due to profit booking by the investors at the new high levels.
"It's due to the profit booking that the market took a reversal today," Ajay Parmar Head of Research Emkay Share and Stock Brokers said.
Atherstone Capital Asia President Ajay Puri believes that Wednesday's volatility was triggered by one-sided movement in market prompting profit booking at higher levels by domestic as well as FII. "You could possibly see profit booking at every rise as the surge in the Sensex has been at a right angle," he added.
On when the benchmark index would cross the 8,000 mark, Parmar said, "It is as good as anybody's guess ...yours or mine."
While Asika Stock Brokers' Paras Bodhra said, "Sensex is not likely to touch 18K in a day or two but it might reach that level by the end of this month. It would be healthy if the markets would consolidate in the range between 17 to 18K".
The gain of about 200-300 points each day in just four sessions and the sudden surge to the new peak indicates towards a bubble formation in the market, Mutual Fund Tracking firm Value Research Online CEO Dhirendra Kumar said.
"The sudden dips and scaling of new peaks scares the investors and the nervousness is bound to affect the market sentiments any day," Kumar added.
"A combination of factors including global cues and profit booking has led to the volatility....there is fear and nervousness and one small trigger or rumour can bring the market down," Kejriwal said.
Besides, FIIs who have invested over Rs 19,000 crore (Rs 190 billion) in the markets in September are responsible for the positive rally in the market.
"The FIIs were responsible for the bull run in the market. Though nothing in concrete can be said regarding FIIs reaction at this moment, but hedge funds are likely to withdraw and if this happens, it would drag down the market to 16,000 level," Tulsian said.
While, analysts believe the heavy liquidity in the market has led to the fast-paced rally at the bourses.
"FIIs are pouring money like anything. The euphoria in the market is because of the growth in the Indian economy and as the GDP of the country is within the range of 8 to 8.5 per cent... This growth momentum would continue," Paras said.
