Cash turnover up 17% in Nov: In buoyant mkt, trading volume sees recovery

After dropping to multi-month lows in October, stock trading volumes rose last month as the secondary market continued to be buoyant. The average daily trading volume (ADTV) for the cash segment rose to Rs 61,562 (National Stock Exchange, or NSE, and BSE combined) — a gain of 17 per cent month-on-month (MoM) and reverting to the previous 10-month average.

The ADTV for the futures and options segment (both NSE and BSE combined) stood at Rs 147.5 trillion — a gain of 2 per cent MoM.

Trading volumes tend to jump whenever markets rally. Hopes that the US Federal Reserve might go for smaller hikes, falling oil prices, and China’s Covid woes that a section of the market thinks will lead to greater foreign portfolio investment (FPI) flows into India, fuelled the November rally.

Some macro data from the US lends credence to claims that interest rates are peaking. The composite purchasing managers’ index in the US fell to 46.3 — the second lowest level since the pandemic breakout. A reading below 50 indicates contraction.

“China has become less investible for large investors,” said U R Bhat, co-founder, Alphaniti Fintech.

Both benchmark indices rose 4 per cent to hit new records last month. The gains were supported by positive FPI flows. After being net-sellers in October, foreign investors bought shares worth Rs 36,239 crore, according to the National Securities Depository. The buying in November was the second-highest during the year after August.

Indices hitting new highs seem to have enthused investors.

“The cash volumes move in line with market sentiment. Since the markets have hit new highs, there is a small bounce-back in cash volumes. New highs have a different impact on perception and sentiment. If you are holding a stock giving returns, people tend to book profits and reinvest. Now mid-caps are also rising. Market activity was a bit subdued in October as there were market holidays and traders are averse to making aggressive bets during the festival season,” said Prakarsh Gagdani, chief executive officer, 5Paisa Capital.

Rising volumes are a sign of investor optimism on the sustainability of market gains, observed experts.

“Markets are overbought and expensive. But we have defied global trends. Inflation will get tamed in the near term if rate hikes correspond to expectations,” said Gagdani.

Analysts are optimistic about volumes going up in the months to come as they expect the markets to rise further.

“Whenever markets are up and people are making money, volumes will increase.  The rally can continue for a while as November and December are good market months. A pre-Budget rally is possible in January. After that, it will be the October-December quarter results and Budget 2023-24 that will determine market trajectory,” said Ambareesh Baliga, an independent equity analyst.