Amid market boom, trading volumes at all-time highs

Average daily turnover Rs 5.31 lakh cr in derivatives segment is a record

With the benchmark indices registering new highs in May, share trading activity also seems to be gathering pace.

Average daily turnover in the derivatives segment for the month stood at a record high of Rs 5.31 lakh crore. Daily cash turnover at Rs 34,800 crore, saw a 21 per cent jump over the previous month and was slightly below March’s record of Rs 38,424 crore. Turnover in March was higher due to transfers by promoters between themselves, a restructuring to save on tax.

High turnover in both the derivatives and cash segments, despite stocks scaling new highs, are a sign of conviction in the rally, say experts. The benchmark Sensex on the BSE gained four per cent in May. Market players say the high trading volumes are driven more by institutional investors. Growth in retail (individuals') turnover was flat in May.

Changes in tax treaties have led to more participation of foreign institutional investors (FIIs) in the derivatives segment. This is leading to the high volumes in the futures and options space, said an expert. Daily average F&O volumes pierced the Rs 5 lakh crore mark for the first time in April, when the new treaties came into play.

“Market volumes have picked up significantly in the past few months due to strong buying by institutional investors. Such high trading volumes amid a bull run indicates the strength in Indian markets. The government's pro-active approach towards reforms, along with a positive monsoon forecast, have added steam to the market run,” said Ajay Menon, chief executive officer (retail broking & distribution), Motilal Oswal Securities.

Under-performance of the broader markets in May has weighed on retail participation. The BSE mid-cap index fell 1.2 per cent; the small-cap one lost 1.9 per cent. “While we saw the institutional participation go up during May, the turnover in the retail and high net worth individual segments was flat due to the underperformance of mid-cap and small-cap stocks. Such stocks usually constitute a significant part of both investors’ portfolios,” said B Gopkumar, chief executive officer, Reliance Securities.

Analysts expect the market volumes to remain robust in the near to medium term, as mutual funds and FIIs continue to seek investment opportunities. Funds have emerged as aggressive buyers in the Indian markets during recent months, due to strong inflow into Systematic Investment Plans. MFs made purchases during May worth Rs 11,224 crore from the Indian markets; FIIs bought shares worth $1.4 billion. Another reason for the high trading turnover over recent months is the return of previously inactive clients. Brokers say they've been seeing 30-35 per cent of client reactivation since the beginning of 2017. According to experts, every secular bull run sees re-entry of investors, wanting to chase returns. “However, at this point, investors have to be really careful while choosing stocks. For retail investors, the best way to participate in the markets is through the MF route,” said Arindam Chanda, head of broking, IIFL Securities.