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.

F&O Check: Option buyers book out; IVs halve, premium falls

Riken Mehta 
moneycontrol.com 

Follow me on Twitter @mehtariken

F&O players had geared themselves for volatility on the day of the election results and took heavy positions in the options market mostly on the long side. A trader or investor bullish on a particular index or stock would buy at the money or out of the money calls to cash in on upside in it.

Traders bought Nifty out of the money calls earlier this week especially 7200, 7500, 7700 and 8000 calls in anticipation of 5 to 10 percent rally today. The Implied Volatility or IV shot up to as high as 40 levels yesterday on huge positions in calls.

Nifty rallied to 7500, gain of 400 points on early trends predicting BJP win and the premiums in most of the calls doubled leading to profit booking in out of the money calls. The Nifty is now down 300 points from day’s high and IVS have fallen to sub 25 levels.

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.