The Rationale: Market value is not an indicator of the market, but of the fundamentals. It is not what a company's financials generate and the market uses. It is a number that the market generates--one which encapsulates its opinion of a company's fundamentals. Market value, the product of a company's equity and share price, gets re-evaluated with every new price that the bourses generate. Essentially, every trade on the stockmarkets is a fresh opinion by the investor on the future of a company. But how sound is this opinion? One trade is only two people's--the buyer's and the seller's--opinion of the true worth of the company at a given point of time. It is an opinion poll on the corporate sweepstakes, using a randomly-chosen sample size of one.

But, then, the market value generated by even a single trade is not independent of the market. Technically, it has the market's concurrence. However, there is one flaw with this argument: volatility. During the year, the average variance of even the broadbased market indices like the BSE 100 was as high as 1.11 per cent--significantly higher than, for example, the Dow Jones, whose variance during the same period was 0.28. The volatility of the Sensex stood even higher, at 1.28 per cent.

Volatility And Value

The BT-500 provides even more provoking insights. The market value of as many as 403 companies fluctuated by more than 50 per cent. About 250 companies traded in a range of more than 75 per cent. While there were a few companies that were relatively stable--Kirloskar Cummins traded within a 25.60 per cent range while Kajaria Ceramics moved within a 26.30 per cent groove--not more than 13 companies traded in a range of less than 30 per cent.

Even the largest companies, like Hindustan Lever Ltd (HLL)--the most valuable among the chosen 500--and Reliance Industries Ltd (RIL)--the third-most valuable--were extremely volatile. On March 31, 1997, RIL's market value stood at Rs 11,800 crore, up from Rs 9,725 crore on April 2, 1996. But these figures hide two very different journeys that the scrips made during the year. From its starting level of Rs 9,725 crore on April 2, 1996--the first trading day of the financial year--RIL's market value moved up to Rs 11,739 crore on May 11, 1996, and then collapsed to Rs 7,849 crore on July 18, 1996. During this period, the daily variance in the company's value was as much as Rs 240 crore. In the following week, however, it shot up by Rs 2,693 crore, rising to Rs 10,542 crore. From there began a southward journey that took the its market value to Rs 8,217 crore in the following five months. On Budget Day, the value flared up to Rs 14,271 crore--a gain of 65 per cent in three months. A fortnight later, it dropped by more than Rs 600 crore in a single day, repeating its plunge on March 31, 1997. In fact, RIL showed a daily variance of 3 per cent on 178 of the total 240 trading days during the year.

Compared to RIL's roller-coaster ride, HLL's progress has been apparently stately. Its market value rose from Rs 10,427 crore on April 2, 1996, to Rs 13,690 crore on March 31, 1997. But it was a turbulent journey all the same. Sure, there were times when the market value changed by large amounts--in late April, 1996, for instance, HLL gained Rs 600 crore in a week and lost half the value the following week. From May 12, 1996, to June 13, 1996, it gained Rs 2,322 crore--moving up from Rs 11,200 crore to Rs 13,400 crore--and then lost half the value in a few days. But such fluctuations were few and far between. For the major part of the year, between July, 1996, and February, 1997, HLL's market value moved in a narrow range between Rs 11,000 crore and Rs 13,200 crore. Of course, like almost every other major company on the bourses, it shot up after B-Day by more than Rs 1,500 crore, losing, subsequently, 9 per cent of its value, when the Congress (I) president, Sitaram Kesri, withdrew support to the Deve Gowda Administration. But the average daily variance of HLL was just 1.17 per cent--less than half that of RIL. Which of RIL's or HLL's swings or dips reflected their true value? Neither. Hence, it was necessary to find their average value.

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