Cash market turnover close to May level

Cash market turnover on the bourses is inching towards its peak in May this year. While the average daily turnover of this month on the BSE is 6 per cent higher than the May level, the same on the NSE is 6 per cent lower than the level seen in May this year.

And, it is not just the turnover (the market value of traded shares) that is moving up, but the trading volume "� in terms of number of shares "� is also rising.

The average daily trading volume on the BSE is 90 per cent of the average daily volume in May, while the same on the NSE is 82 per cent.

While the turnover is climbing toward its May high, trades (buys and sell orders) in the current month on the BSE and the NSE are both 8 per cent higher than their May levels.

Investors have been buying non-A group stocks or scrips traded under B1, B and S groups during the past two months rather than the Nifty or the Sensex stocks, which are trading at an average P/E (price to earnings multiple) of 22.76.

While the average daily turnover in the Sensex scrips is currently 70 per cent of the May level, it is 76 per cent for the Nifty stocks.

B1 group, which consists of companies that are fundamentally strong, witnessed a jump of 61 per cent in its turnover to Rs 1,746 crore this month from the daily average of Rs 1,084 crore in May.

While the turnover in S group stocks (companies with paid-up capital below Rs 20 crore) surged 46 per cent from Rs 190 crore to Rs 277 crore in the same period, the B group turnover rose 29 per cent to Rs 197 crore from Rs 152 crore.

Junior Nifty, too, saw 11 per cent growth in turnover to Rs 936 crore in November from Rs 837 crore in May.

Dalpat Mehta, research analyst, Religare Securities, attributed the upturn in volumes of B1, B and S group counters to cheap valuations in these stocks compared with an average of P/E of 22.8 for the Sensex-based stocks.

"About 60-70 per cent of the stocks in the BSE-500 index are trading below their previous peaks," he said.

The Sensex, which experienced a 30 per cent correction in the May-June period, has not only recovered the losses but also gained another 1,000 points from the peak of May.

Mehta said he expected the rally in B1 and B2 stocks to continue for at least some time more. "The rally will be stock-specific in the mid-cap and small-cap segments," he said.

According to him, the Rs 1,400 crore raised by DSP Merrill Lynch Fund Managers for its mid-cap fund might also have started to flow into the market, resulting in higher volumes in B1 and B2 scrips.

Deven Choksey of KR Choksey & Co said there was a re-rating of small- and mid-cap stocks making their valuations more attractive. Secondly, there were several quality small- and mid-cap counters that are likely candidates for acquisition by bigger players.

"Given the market scenario, funds are likely to invest in these select counters," Choksey said. Two recent instances are MphasiS and Matrix, which were bought by multinational players. "We can expect to see more such transactions in the future," he said.

Another reason for the increased liquidity is the higher flow of foreign private equity (PE) funds looking for suitable investments in the country. Their appetite is resulting in listed companies attracting more funds.

"PE funds are finding listed small- and mid-cap stocks attractive and, hence, are pumping in money to help these companies grow further," Choksey said.