Surge in foreign flows a key reason for uptick in delivery volumes: Experts

The market could be on a strong footing if delivery-based trading data is anything to go by. In March, when the benchmark indices rallied nearly eight per cent, the proportion of delivery-based trades in total trading volume was the highest in 15 months. The delivery-based volumes on the BSE stood at 50 per cent, while that on the National Stock Exchange (NSE) was 37 per cent. The previous 12-month average in comparison was 45 per cent on the BSE and 33 per cent on the NSE.

Increase in delivery percentage indicates that a higher portion of long-term money could be entering the market. On the other hand, a lower reading indicates mounting of speculative bets. Market players said the sharp rebound in the market from the 2019 lows and participation of broader market stocks provided comfort to investors to commit long-term money.

“March onwards, there was stability in the markets. When you have stability, investors are comfortable putting in more money. That is when you see delivery-based volumes going up,” said Kamlesh Rao, chief executive officer (CEO), Kotak Securities.

Experts say the surge in foreign flows is a key reason for an uptick in delivery volumes. In March, foreign portfolio investors (FPIs) invested Rs 42,700 crore, one of the highest monthly investment tallies. Overseas investors have pumped in another Rs 5,000 crore into domestic equities so far in April.

“Since end-February, the markets have seen robust FPI flows. These inflows have come in the cash segment with overseas investors taking delivery of stocks. Moreover, general bullishness is back after a lacklustre market during the start of the second half of 2018-19. If the FPI flows continue, we will continue to see buoyancy is the delivery percentage,” said Sandeep Nayak, CEO, Centrum Broking.

So far this month, the average delivery percentage on the BSE is 68 per cent, while it has dipped slightly on the NSE at 34 per cent. The markets have extended last month’s rally by gaining over one per cent in April.

Delivery-based volumes had witnessed a drop amid a sharp slide in the markets between September and October last year. Experts say, delivery volumes have been lower than usual in the past 12 months due to weakness in the broader markets.

Last year, the mid-cap and small-cap indices had seen a sharp correction, even slipping into the bear market territory briefly.

Experts say, higher delivery percentage coupled with a sharp up move in the market is a bullish signal, but investors should look for a sustained trend.