Cash-market volumes hit record highs in April amid a rebound in stocks

Derivatives turnover dips after Sebi curbs; average daily turnover value in equity cash segment of NSE stood at Rs 50,300 cr

Cash-market volumes climbed to record levels in April amid a rebound in stocks from their multi-year lows. Derivatives turnover, on the other hand, witnessed slight dip amid regulatory tightening.

The average daily turnover value (ADTV) in the equity cash segment of the National Stock Exchange (NSE) stood at Rs 50,300 crore, up nearly 50 per cent year-on-year (YoY), the data analysed by ICICI Securities shows. The ADTV for NSE’s equity derivatives segment fell 3 per cent YoY to Rs 11.4 trillion.

The sharp jump in volumes is significant as India remained under lockdown, with many sectors of the economy reporting zero or negligible business activity. Experts said the buoyancy in the market — both in volumes and surge in stock prices — was positive from a tax collection point of view. The Centre collects taxes on trades by way of a securities transaction tax and also short- and long-term capital gains tax.

In March, the benchmark indices had dropped a record 23 per cent. However, they managed to snap back in April, gaining 14 per cent — their biggest monthly advance in 11 years.

Regulatory tightening and value-buying led to a spurt in cash-market volumes, said experts.
 

“The Securities and Exchange Board of India (Sebi) discouraged investors from taking large derivatives positions by increasing margins. This prompted some investors to go to the cash segment. Also, with markets falling sharply, many started to accumulate stocks. The trend was also visible in high delivery-based buying,” said Chandan Taparia, derivatives and technical analyst, Motilal Oswal. On March 20, the markets regulator (Sebi) imposed temporary restrictions on short selling, increased margin requirements and hiked penalties on violators. The move was to curb wild swings in stock prices seen in March.

 

 

“The markets recovered in April after a sharp correction. Once the Nifty and stocks crossed crucial levels, we saw an increase in investor participation. Also, given the high volatility, some investors avoided leverage and derivatives trade,” said Pritesh Mehta, technical analyst-institutional equities, YES Securities.

After Sebi imposed curbs, the trading volume had plunged as it led to unwinding of excessive positions. Also, disruptions caused by lockdowns had initially weighed on market volumes in March. However, traders adjusted to the new landscape. Both states and the Centre had allowed the stock market ecosystem to function despite the lockdown. Further, exchanges permitted brokers to remotely access the trading infrastructure, minimising the need to go to offices.

Many brokers also reported an uptick in new account openings in March and April. Experts said the fall in the markets and online account opening process helped bring new investors into the equity fold. The number of cash market trades on the NSE saw nearly 70 per cent YoY spurt in April. The bourse further cemented its position as the No. 1 stock exchange.

“In 2019-20, the NSE’s market share in the equity cash segment has increased to an all-time high of 93 per cent versus 91 per cent in 2018-19 and 87 per cent in 2017-18,” said ICICI Securities in a note. 

While the equity segment reported encouraging trading volumes, the commodity derivatives market saw a slump in trading activity. The MCX saw its ADTV drop 41 per cent to Rs 15,700 crore in April. “Shortened trading hours, significant decline in crude volumes, and higher margin requirement to address volatility concerns led to a sharp fall in ADTV (in the commodity derivatives segment),” said the brokerage.