Stock trading volumes dropped for the first time in four months in October even as the secondary market continued to be buoyant. The average daily trading volume (ADTV) for the cash segment fell to Rs 54,532 crore (NSE and BSE combined), a fall of nearly 20 per cent month-on-month (MoM). The ADTV for the futures and options (F&O) segment (both NSE and BSE combined) stood at Rs 147.4 trillion (notional turnover), declining 4 per cent MoM.
Typically, trading volumes tend to jump whenever the markets rally. However, this was not the case in October. Experts say the latest rally has taken many traders by surprise, with most of them waiting on the sidelines.
Illustration: Binay Sinha
“In the past two weeks, we have seen the Nifty Index rallying 1,000 points (over 6 per cent). However, the turnover in equities cash as well as the derivatives segment has remained subdued. The major reason for this rally is short covering by foreign portfolio investors (FPIs) in index and stock futures. At the same time, the client (individual investors) slightly trimmed their aggressive long bets in derivatives. It was a denial rally as nobody has actively participated,” said Abhilash Pagaria, head, Nuvama Alternative & Quantitative Research.
In the past 13 sessions, the Nifty made gains on 11 occasions. Experts say many were hoping that the markets would correct amid global headwinds (currency weakness, rising bond yields and fears of recession). However, optimism about the US Federal Reserve going slow on rate hikes has fuelled a rally in global equities over the past two weeks.
On Wednesday, the Nifty closed at 18,082, adding close to 1,000 points or 5.8 per cent in the past one month.
The gains were supported by positive FPI flows. After selling to the tune of Rs 13,405 crore in September, FPIs bought shares worth Rs 8,430 crore last month.
Market players said the festival season could be one of the reasons behind suppressed trading activity.
"Usually, market activity is a bit subdued in October as there are market holidays, and traders don't make aggressive bets during the festival season. Despite the markets rising, there is no positive news flow nationally and internationally. We are still grappling with high inflation and other macro headwinds. In such a situation, it is natural for traders to be circumspect. Moreover, the rally in markets last month was confined to select stocks in the large-cap space. But if the momentum continues, we could see the rally becoming more broad based," said Prakash Gagdani, chief executive officer, 5Paisa Capital.
Markets rising on the back of decreased volumes is a sign that traders are not convinced about the sustainability of gains, said some experts.
At present, most analysts are cautious on domestic equities due to expensive valuations. The Sensex is trading at a price-to-earnings multiple of 23.4 of its one-year forward earnings as against the 10-year average of 17.5x.
"Valuations have been elevated and earnings have been mixed. And that made investors tread cautiously. Moreover, of late, whenever Nifty comes to 18,000 levels, it's always followed by a correction as investors are sceptical about indices gaining further,' said Ambareesh Baliga, independent market analyst.
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