The Sensex recorded its highest single-day gain in absolute terms on Tuesday after the market regulator Securities & Exchange Board of India (Sebi) met foreign institutional investors (FIIs) on Monday and clarified that money flow from abroad will continue with tighter regulations.
While the benchmark index of the Bombay Stock Exchange gained 878.55 points, to close at 18,492.84 points, the broader Nifty of the National Stock Exchange firmed up by 289 points, or 5.59 per cent, to close at 5,473.70 points.
The major support to the market came in by capital goods segment, which recorded a gain of 1,208.42 at 16,777.18. This was followed by metal index by 959.57 points at 15,392.29. Oil and gas index rose by 660.55 points at 10,740.52.
With the Sensex hovering around its peak, experts said dips and jumps of a similar magnitude would become common on the index. "A gain of around 1,000 points from say 6,000 points on the Sensex, would have meant a lot. But at such high levels, rises and falls like these are quite common," said Nimesh Kampani, chairman of JM Financial.
The 879-point jump on the Sensex translates into an effective gain of only 5 per cent, which is common among global equity indices. This is because a 1,000-point rise on a bigger index would mean lower returns in percentage terms and vice versa.
On Tuesday, for instance, while a 5 per cent gain on the Sensex translated to only 878 points, a gain of just 3.54 per cent on Hong Kong's Hang Seng saw it grow stronger by 1,003.23 points.
That is because the Sensex gained 5 per cent from a lower base of 17,614 (Monday's close) as against Hang Seng's base value of 28,373.63 points, over which the index gained 3.54 per cent, or 1,003 points.
"At 19,000, we said a 700-800 point move in a day was going to be inevitable. Even investors tend to day-trade as they think there is money to be made in such big intra-day swings. It has become difficult for day traders as well, but there is no option but to live with it," said Amitabh Chakraborty, president – equity at Religare Securities.
The bad news is that the markets are likely to remain volatile.
"Volatility has become a reality of life and investors need to accept it. Whenever markets hit such highs, there will be bouts of volatility. Our advice to investors is to stay in there for the long term and not get lured by this volatility into trading," said Venkatraman, director of India Infoline.
The Sensex and the Nifty snapped their record-breaking spree last week after the market regulator proposed to regulate participatory notes (P notes) to encourage front-door entry to foreign investors.
A lot of foreign investors often prefer to invest in India through their sub-accounts registered in tax havens like Mauritius, which in turn issue P notes to their clients based on their investments.