The great heights scaled by the Indian stock market in the last few months may be a reason for celebration for many, but not for analysts and investors who face a tough time predicting future trends given the high volatility.
"Growth expectations can still be high, but that does not imply that these cash flows will not exhibit volatility normally associated with a developing economy such as India," a report by global equity research firm Morgan Stanley said.
The Bombay Stock Exchange benchmark index Sensex has witnessed sharp fluctuations in a span of just five months. It journeyed from 8,000 to 12,000 in between shedding over 3,800 points. In the month of June, the Sensex had plunged to as low as 8799.01 points after touching the magical 12,000-level for the first time in May.
The Sensex managed to regain the lost ground by conquering the 12,000-level yet again in September and touched its life time high of 12,982.18 on October 16, within striking distance of the 13,000 milestone.
However, defying all trends, the index for the past six consecutive trading days has lost around 300 points, enhancing the challenging environment for the investors and analysts, making it difficult to forecast changes in the equity risk premium (ERP), the material driver for share prices in the future.