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Crisis of confidence hits deliveries in 2011

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B G ShirsatRajesh Bhayani Mumbai
Last Updated : Jan 21 2013 | 1:22 AM IST

Delivery-based buying in the secondary market has hit a four-year low, down 25 per cent over the past 12 months in calendar year 2011, as investors preferred to stay away from a gloomy equity market. So, too, for risk appetite, with average trading volume on the Bombay Stock Exchange and National Stock Exchange down 23 per cent over the level a year before.

India has been the worst-performing market this year. Domestic recovery was disrupted by interest rate increases, a crisis of confidence in policy and politicians, and seemingly endless news on the debt crisis abroad. Foreign institutional investors (FIIs) have been net sellers this year, while domestic institutional investors supported the market, with net inflows of Rs 26,887 crore.



Motilal Oswal, chairman, Motilal Oswal Securities, operating from 600 cities and 1,500 outlets in the country, said: “Investors’ confidence has been shaken and no one would prefer to take shares home. Volumes, whatever remained, have shifted to day trading, options and commodities like gold.”

Dinesh Thakkar, chairman and managing director, Angel Broking, which has 16,000 terminals in the country, said: “As there has been not much of wealth creation in equity markets in the last one year, a lot of long-term investors have shifted focus to fixed income from equities. So, there has been a fall in delivery-based buying.”

Owing to the testing macro environment, at home and abroad, investors are worried about the current volatility and risk in equity markets. So, both institutional and retail investors are hedging portfolios by using derivatives, said Thakkar.

A-group stocks are also hit by investor apathy. Trading volume in these most-traded large caps has declined 31 per cent, while delivery-based buying slumped 36 per cent. The major drop noticed was in B-group shares, with deliveries down 51 per cent, reflecting the lack of interest in buying mid-cap and small-cap stocks. These stocks have not posted sizable gains for five years.

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The block deals on BSE and NSE have dried up due to the absence of FIIs, but promoters did some value picks through open market buying.

Historically, portfolio investment meant only FII inflows into the equity market. However, according to CLSA research, as part of India’s ongoing integration with the rest of the world and calibrated reforms to further the opening of domestic asset classes to foreigners, FII participation in local currency government and corporate debt has picked up. Indeed, as a share of total net FII portfolio inflows, debt inflows hit 24.6 per cent in 2010-11, after being negligible a couple of years earlier. Nevertheless, lack of interest in buying equity shares through public offers and also in the secondary market reflected in dull progress in opening of new demat accounts with depositories. The number of demat accounts with NSDL, the leading depository, grew a dismal three per cent to 11.78 million accounts since January 2011. Earlier, the opening of new demat accounts had been growing at eight to 10 per cent annually, but on account of negative returns from Initial Public Offers and sluggish secondary markets, investors have started closing these accounts.

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First Published: Dec 14 2011 | 12:57 AM IST

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