The Securities and Exchange Board of India's (Sebi) decision to ban short-selling is based on the misconception that short sellers have driven down the market. But a look at the data on short-selling provided by the Bombay Stock Exchange (BSE) proves otherwise. The daily short-selling which account for no more than about one-two per cent of the total trading volume has been on the decline since the budget.
In contrast, the traders who are benefiting from the market volatility after the budget have escaped unpunished. The market measured by the BSE Sensex has been showing intra-day mobility of three-seven per cent since the budget. This fluctuation, which proved boon to the traders, drive away the short sellers from the market.
The intra-day price volatility which is measured as percentage change between the intra-day high and low of the sensex has been increasing after the budget. Though the range was limited around three per cent during the first few days after the budget, it increased substantially to 7.25 per cent on June 8. The sensex volatility hovered around three-four per cent between June 9 to June 11. It picked up again 6.13 per cent on June 15 and 7.08 per cent on June 16 when the sensex moved upside down by about 200 points.
The price movement of the widely held sensex scrips explain this points quite clearly. The traders which have to pay a brokerage of about fifteen paise have enjoyed the price volatility. ITC which had an intra-day price movement between five per cent to ten per cent since the budget witnessed higher volume on the day of the wide price mobility.
On June 8, with an intra-day price movement of 10.8 per cent, volume of ITC increased to 66.03 lakh shares from 41.93 lakh shares in the previous day. Again on June 16 with an intra-day movement of 8.17 per cent the volume increased to 50.51 lakh shares from 36.72 lakh share on the previous day.
Reliance Industries, which registered an intra-day movement of eight per cent between May 29 and June 2, had a volume of over 100 lakh shares each day. The volume of State Bank of India (SBI), too, moved with the intra-day price mobility.
A 10.8 per cent intra-day movement saw SBI's volume peaking up to 53.13 lakh shares on June 3 from 31.66 lakh shares on an intra-day price movement of 4.92 per cent of the previous day. The high intra-day movement in most of the volatile sensex stocks gives ample opportunity for traders to earn money.
On the contrary, short-selling declined with higher intra-day mobility. With lower intra-day mobility the short selling position on the Bombay Stock Exchange (BSE) increased from Rs 308 crore on May 29 to Rs 478.50 crore on June 2.
With Sensex showing wide fluctuation, short-selling position declined from Rs 476 crore on June 9 to Rs 295 crore on June 16.