ADTV for equities cash market segment hits a 21-month high in July

F&O volumes log new highs, increase by 2.8 times over a year earlier

The average daily turnover (ADTV) for the equities cash market segment hit a 21-month high in July as the upward journey in stock prices continued. Meanwhile, the derivatives, or future and options (F&O) volumes recorded new highs amid the uptrending markets that proved fertile ground for traders.

The country’s top bourse -- the National Stock Exchange (NSE) -- logged 17 per cent month-on-month (MoM) growth in both cash and F&O ADTV. The cash turnover stood at Rs. 72,687 crore, while F&O turnover (notional) rose to Rs. 303 trillion. On the other hand, the BSE saw a 10 per cent dip in cash market volume to Rs. 4,650 crore, while its newly-reintroduced derivatives segment saw 4.4 times MoM jump to Rs. 4.4 trillion. Combined cash ADTV stood at Rs. 77,337, most since October 2021.

In July, the benchmark Sensex and the Nifty50 registered their fifth straight monthly gain — the longest gaining streak since October 2021. The two indices rose nearly 3 per cent, each, while the Nifty Midcap 100 and the Nifty Smallcap 100 indices outperformed their peers, gaining 5.5 per cent and 8 per cent, respectively.

Trading activity gets a boost when the underlying market conditions are strong.

"Various indices are at all-time highs. The participation is coming back as mid-caps and small-caps rally, which is boosting the turnover. Many retail clients, who were stuck with their positions earlier, are getting an opportunity to book profits,” observed Prakarsh Gagdani, executive director and chief executive officer (CEO), 5 Paisa, a retail-focused brokerage.

"As far as the cash market is concerned, if the market continues to grow, we will see the kind of participation that we saw in 2020 and 2021. Markets are yet to factor in the impact of monsoons on GDP (gross domestic product), Goods and Services Tax collections, and corporate earnings, which will be the key if the rally has to continue," he added.

From this year’s lows in March, the benchmark indices have rallied 15 per cent. The gains in the broader market have been nearly 2 times that of large-caps.

“After a subdued April 2023, trading volumes have remained healthy. FPI (foreign portfolio investor) flow-driven rally in the markets has attracted local traders as well as investors and action has spread to broader markets. F&O volumes continue to touch new highs. With state and central elections due in the next 2-3 quarters, markets will not be short of expectations and triggers -- both positive and negative. This could keep driving volumes. The need for hedging and hope of benefitting from the volatility could continue to support trading volumes,” said Dhiraj Relli, managing director and CEO, HDFC Securities.

The ADTV for the derivatives segment rose for a ninth consecutive month in July. From the year-ago level, the turnover is up nearly 3 times. Within the F&O segment, bulk of the volumes are on account of options trading, where low ticket size and possibility of sharp swings lure investors into placing wagers.

The relaunch of the Sensex and the Bankex derivatives contracts by BSE has also helped expand the turnover pie for the F&O segment. To attract investors, the exchange has reduced the lot sizes and moved the expiry cycle to Friday. Market players said that the increase in expiry days for derivatives contracts is also boosting activity.

At present, there are derivatives contracts expiring four days a week. NSE’s Nifty Financial Services (FinNifty) F&O contracts expire on Tuesday; Bank Nifty on Wednesday, Nifty on Thursday and the Sensex and the Bankex on Friday.

While all these measures are encouraging individuals to trade more, a recent study conducted by the Securities and Exchange Board of India (Sebi) showed that nine out of 10 derivatives trades end up in losses for small investors. The regulator is in the process of issuing more safeguards for investors dealing in the F&O markets. 

In a statement last week, the regulator said that it is in the early stage of evaluating on-boarding of retail clients can be done by “adoption of risk-based approach.” The regulator has, however, said that it has no plans to restrict retail participation in the derivatives market.

“Sebi’s focus has always been on adequate risk management, while ensuring ease of doing business and compliance, rather than on placing any curbs on trading,” it said.