Not good: volumes surge as market falls

The Sensex on Friday saw its worst weekly closing since October. A spurt in index heavyweight Reliance Industries notwithstanding, the Bombay Stock Exchange benchmark closed the day 1.3% lower and the week down 4.49%.

Interestingly, even as the Sensex lost 789.6 points over the week, turnover on the exchanges has been surging.

Market participants attribute this to the fact that investors looking to restrict their losses by taking positions on the derivatives side and traders who see opportunities in a market that is no longer directionless.

The markets witnessed the highest average daily turnover for the opening week of the month in over 5 months now. The average daily turnover on exchanges has increased from about Rs 85,000 crore in the previous 5 months to Rs 102,176 crore in the first week of May.

Derivatives volumes have jumped to Rs 83,871 crore in the first week of May —- the highest average daily turnover in over 17 months. The volatility index has jumped up by a sharp 60% from a life-time low of 17.17 on April 5 to 27.40.

“Volumes being a function of volatility in the markets, we are seeing higher turnover. Also, high level of activity in index and stock options is leading to higher volumes. Driven by scary global cues, FIIs have been increasingly hedging their positions and also entering into fresh shorts,” said Yogesh Radke, head -quantitative research, Edelweiss Capital.

Some of the activity has to do with the fact that traders are taking a more active role in the market after a sedate April, which saw the Sensex move just 30.94 points, or 0.17%.

“Trading activity has picked up since the market has gained a clear direction. Earlier, the movement was range-bound and traders preferred to sit things out. There is more participation with an increase in the volatility,” said Shrikant Shetty, vice-president, Unicon Securities.

Still others are making use of the fall to buy into scrips at lower levels. “Investors are taking positions as a hedge against their portfolios. Others still are trying to average out their price, which has resulted in more participation,” said Jitendra Panda, senior vice-president, Motilal Oswal Securities.

Experts see the choppiness persisting. At 5018.05, the Nifty is not too far from crucial supports near the 4900 mark.  “The Greek crisis has driven down equity markets around the globe. The Greek crisis is graver than the past financial issues and in the near term, there is potential for big falls in share prices around the globe. However, with global equities having rallied 79.9% in a scant 13 months through April, we feel it would only be natural to go through a correction of around 10% or 20% over two or three months,” said a Citigroup Global Markets report dated May 7, authored by Tsutomu Fujita.

“We see the 200-day moving average (DMA) at 4920-4950 as a crucial support. There has been a lot of sell-off in metals and investors could see some pressure on banking stocks on further falls,” said Shrikant Shetty.

“We may see markets remain under pressure till global cues sort out fully. The immediate support for the markets seems to be 4950 which is the 200 DMA level,” said Radke.