Even as the markets approach their intermediate highs, the trading intensity in the cash market has been decreasing on account of lower retail participation and a steady rise in market capitalisation.
The trading intensity for the current quarter has dipped to 0.32% from around 0.6% levels witnessed in first quarter of this fiscal, when markets were trading at their yearly lows.
“Trading intensity, as measured by daily volumes divided by market capitalisation, is running at multi-month lows,” H Nemkumar, president (institutional equities), IIFL wrote in a report dated March 15, 2010.
The trend may be attributed to constantly rising market capitalisation, from an average Rs 34,82,633 crore in April, 2009 to Rs 61,52,379 crore as on March 17, 2010.
Average daily cash volumes, meanwhile, have fallen from Rs 25,213 crore in the first quarter of 2009-10 to Rs 19,627 crore till date this fiscal. Average daily volumes in the second and third quarters were at Rs 24,079 crore and Rs 21,316 crore, respectively.
“Daily volumes are down 5% quarter on quarter in the cash market, while in the F&O segment they have been flat. Extension of trading hours has hardly resulted in any improvement in volumes,” the IIFL report said.
“One reason cash volumes are low is that real retail participation, which makes up this volume, has not been good. The average investor is still keeping away from the markets. On the other hand, the institutional volumes in the derivative segment have been good,” said Apurva Shah, VP & head of research (institutional equities) at Prabhudas Lilladher.
Low intra-day volatility may be another factor for cash volumes not picking up. “The markets are not going anywhere for the last few weeks. As a result, intra-day volumes, which contribute to cash volumes, have been lower. However, we have seen a spurt in volumes on an overall basis in the last two days,” said Ambareesh Baliga, vice-president at Karvy Stock Broking.
Also, the market has stayed in the 16000-17700 range in the last six months, since the Sensex first closed above 16000 on September 7, 2009. High valuations and the lack of a meaningful correction are keeping retail investors away.
Valuations, according to experts, are at the higher end of comfort level if not entirely expensive from a fundamental perspective.
“Though we may see the current market momentum continue with Nifty moving towards 5325, markets in the medium term may correct to 4800 levels again. Q4 results have been factored in and some negative results may lead to disappointment,” Baliga said.
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