Thanks Karthick & Agilent for your replies. I was beginning to get the impression that i was posting in wilderness!
About the leveraging ratio :-
Well it's just something i've been intuitively using and as such i can't vouchsafe for its accuracy nor whether this is the best method of doing it.
After the fall in May, a lot of blame was ascribed to the overleveraging in the mkts - in fact it was adjudged the single biggest culprit for the mkt crash by many experts So i thought if this can cause so much damage then i might as well keep a tab on the darned thing & be forewarned before it strikes again. I started using this ratio on the assumption that it would give me at least an approximate idea of the leveraging if not a fully accurate picture. I used an old stack of the Economic Times to get the figures in May before the fall & i've been tracking it the past 3 months.
I also reckoned that if a ratio of around 5 (before the May crash) is considered perilously high than anything above 4 may be considered the danger zone (4 times leveraging is high enough even going by common sense). In the last 3 mths the factor has remained below 4 and mkts have risen smoothly but i found a certain jitteriness creep in once it rose above 4 (borne by those gap ups & down as Agilent has pointed out and heightened volatility in general). But all this happened before F&O expiry so the correlation is hardly conclusive (which indicator is anyway?!) Will wait to see what happens in more 'normal' times.
The thumb rule of 4 is just that - a thumb rule. In May mkts seemed quite comfortable for quite sometime with the ratio well above 4. I just use it as a threshold, a warning sign that things might be coming to a head. I have no idea what the range is in overseas mkts. But i guess it'll be lower than Indian mkts coz in India virtually everybody is a trader! You'll find a lot more real investors in more mature mkts. (in fact they are the ones who are putting in the long term funds into our mkts now thru what we call FIIs).
(To be continued ...)