Business Today
Treading on volatility
How a dealing room, where money is made or lost each time a share moves, responded.

It is close to 8.45 a.m. on Monday, February 28, 15 minutes before stock markets open for trading. The 24 feet by 8 feet dealing room of Religare Securities in New Delhi's central Connaught Place soon gets occupied by traders and investors waiting to make their money. The day is a oncein-a-year opportunity: Finance Minister Pranab Mukherjee will soon make his speech on the Union Budget 2011-12.

The overall mood is sombre given the high volatility in the stock markets over the last few trading sessions. Five minutes after the market opens, Chaya Arun, the Religare branch manager, steps into the dealing room to caution her six-member team about the market movements ahead in the day. "Budget days tend to be volatile. After touching 21,000 peak last year, there has been a continuous downward pressure on markets, which has dampened investor sentiments," she says. "While it looks difficult, especially after the non-event Railway Budget, we are hoping the Budget will lift spirits," she tells BT.

From one far corner of the room, Arun Kumar Gupta advises clients - taking turns at speaking into a phone and hollering across the room to day traders present - to buy into education and fertiliser sector stocks. His rationale: the government is fighting food inflation and will support the agriculture sector.

This could come in the form of higher fertiliser subsidies. Also, education is likely to top government's agenda, he reasons. In early trades, he buys Rashtriya Chemicals and Fertilizers (at Rs 82 apiece), Chambal Fertilisers (at Rs 71.20) and Educomp Solutions (at Rs 492).

Even as Gupta is bullish, another dealer, Kunal Nanda, is shorting, or betting a share price will fall - the State Bank of India, or SBI, stock. "Indices like Hang Seng, Nikkei and Strait Times have opened down; there's strong chance that our markets will slip into the red as well," he says, adding technical analysis showed the bank stock would slip further. At 9.46 a.m., with the Nifty at 5,404.6, up 101.05 points from opening, Nanda sells 1,000 units of SBI at Rs 2,611 each. And, just in case the share price goes up, he puts a stop loss request at Rs 2,630 - the trading platform will automatically buy back the stock when it touches that price.

The volatility of the past few days has the Religare risk management team cutting the trading limit of its clients on Budget day. The trading limit is the maximum leverage amount the brokerage is ready to offer its clients for buying stocks or derivatives. The limit is set daily based on market situation, value of securities and cash balance in the demat account of the client.

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By 11 a.m., the brightly-lit room is bustling with day traders and a large number of orders are coming through on the phones. The loud conversations between dealers and traders soon turn into a hush as Mukherjee begins his Budget speech. A few minutes into the speech, the conversations are back but in subdued tones.

The first big-ticket announcement is in infrastructure, where the minister says he is increasing the budgetary allocations for 2011-12 to Rs 2,14,000 crore, up 23.3 per cent from the current financial year. The instant reaction is felt on infrastructure shares, led by Larsen & Toubro, BHEL, GVK Power, Lanco Infratech and JP Associates, which go up between one and five per cent.

Nanda, who has just booked a loss of Rs 19,000 on SBI, which has climbed to Rs 2,630 and beyond, wastes no time and buys L&T shares at Rs 1,565 and sells them in a matter of few minutes at a profit of Rs 12 each share. Another dealer Amit Pratap Singh buys and sells 12,000 shares of GVK Power in less than half an hour, making a total profit of Rs 8,400 - at 70 paisa each.

Some stocks like ITC also gain as there is no hike in excise duty on cigarettes, as expected by analysts. Gupta buys ITC at Rs 156 for many of his clients and sells at Rs 169 by the end of the day.

Towards the end of Mukherjee's speech, stock-specific movement slows as activity in Nifty futures and options gather momentum. Between 12.50 p.m. (the time Budget speech concludes) and 1.45 p.m., the Nifty climbs from 5321.7 to 5473.35, up 151.65 points. Almost all the Religare traders play in futures and options during this period. "While the Budget did not say much about the fertiliser and education sectors, the derivatives market gave enough opportunities for us to make money," says Gupta.
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