For the first time, cash turnover is in single digit

As a percentage of total volumes, average daily turnover in the cash segment of the stock market has dropped to single digit for the first time ever, as high market volatility along with macro headwinds force investors to stay away.

The average contribution of cash volumes to total market turnover so far in May has been just 9.66% compared with 10.37% last quarter and 14% in the third quarter of fiscal 2011.

Experts attribute this to a lack of clear direction due to which investors are sitting on the fence.

“The markets over last few months have been stuck in a range and people are not sure of what’s coming up. There is no confidence among retail investors and sentiment is not good due to prevailing macro concerns,” said Nandip Vaidya, president, retail broking, at IIFL.

The average daily cash market turnover in May has dropped to Rs12,800 crore, the lowest since February 2009 when it had plunged to Rs10,743 crore.

There has been a steady decline over the last few months. In January-March, the average daily volumes stood at Rs16,000 crore compared with Rs21000 crore in October-December.

“The markets have not gone anywhere in last three years and the retail investors who usually invest in mid-caps and small-caps are still sitting on losses, which has resulted in them shying away from fresh investments,” said Dinesh Thakkar, chairman and MD at Angel Broking.

Also, there has been a shift to short-term trading in commodities.
“With FIIs selling continously throughout May, retail participation has not been there and those who engage in intra-day trading have also not made money. Many of the short-term traders have also started engaging in commodity trading,” said Sandeep Gupta, vice-president and head-business associate (equity advisory) at Motilal Oswal Securities.

The fall in cash market volumes has also been due to the rising popularity of the derivatives, particularly options, segment. Its share in total turnover has steadily increased from around 25% in April 2009 to 68% currently due to institutional investors taking a directional position on index and stocks through these instruments which have low brokerage and low securities transaction tax (STT).

“With the advent of algorithmic trading, combined with low brokerages on these products, institutional investors and arbitrageurs engage in trading through options, which has resulted in their volumes surging over the years,” said Thakkar.
Going ahead, experts don’t see significant rise in cash volumes as the markets are not expected to do much in coming 2-3 months given the macro headwinds.

“We may see time correction in the markets with not much upside in the near term. While the Nifty may find support at 5200 levels due to valuations, the upside seems to be capped at 5700 as there are too many headwinds, be it interest rates and inflation on domestic front or weak global sentiments due to debt crisis in Europe. Cash volumes are expected to pick up only after there’s a clear visibility and lead indicators on macro front turn positive once again,” said Gupta.