Chart of the day: Cash market turnover is steadily increasing

Riken Mehta
Moneycontrol.com

Follow me on Twitter @mehtariken

May is turning out to be a good month for stock brokers, with daily average cash market turnover (both exchanges combined) touching Rs 25,000 crore. This is the highest in five years, and offers some relief for broking firms, which have been grappling with low volumes for some time now.  While total traded turnover on the bourses (cash + derivatives) has grown over four-fold in the last five years, much of the rise has been driven by increased activity in options contracts, where brokerage charges are a fraction of cash market transactions.

Till mid-2009, cash market turnover would track the rise and fall in benchmark indices. But things changed from 2010 onwards, with cash market turnover falling for extended periods even as benchmark indices were rising.

The rise in average daily cash market turnover in May has been sharp. Between September last year, when the market began rising, till April this year, average daily turnover ranged between Rs 14,000-17,000 crore.

Cash volumes continue to dip even as indices climb

Riken Mehta
Follow me on Twitter @mehtariken

Traded turnover in the cash market is a good indicator of retail participation in the stock market. And looking at the steady decline in cash market volumes since 2009, it is evident that retail investors are yet to regain their appetite for equities. F&O turnover on the NSE has jumped two-and-a-half times, but that is cold comfort even to the stock brokers, since the commission earned on these trades is a fraction of that earned on cash market transactions. 2013 may have been a good year or foreign institutional investors and a handful of market operators, but unless domestic investors (retail as well as mutual funds ) start participating in a big way, a broad-based upmove looks unlikely.

Chart of the day: Brokerages shut shop despite rise in F&O turnover

Riken Mehta
Moneycontrol.com

The number of equity brokers is on the decline, going by Sebi data till December 2011. This despite traded turnover on the bourses having nearly trebled over the last three-and-a-half years. Industry sources say more brokers would have shut shop during the first half of this calendar.

The reason for declining profitability of broking firms has to do with the shift of volumes from cash market to the futures and options (F&O) market where the broking fee is much lower. For instance, on a cash market turnover of Rs 10 lakh, the broker earns Rs 5000 as commission, whereas on the same turnover in the F&O market, the commission is just Rs 250. A sharp rise in the cost of funds too has hurt the bottomlines of brokerages, as they have to fund their clients’ positions till the cheques are encashed.