Low delivery-based volumes underscore bearish sentiment in markets

The falling delivery-based volumes are underscoring the bearish undercurrent in the market, say experts. Trades marked for delivery have been dipping consistently since July. For the month of September, they stood at 31.3 per cent, even as the average daily cash market turnover surcharged past Rs 40,000 crore.

Since 2005, the monthly cash market turnover has been in excess of Rs 40,000 crore on only four occasions, and the average delivery-based volumes has been 31 per cent or below on only nine occasions. 
 

The average delivery-based volume for October has been below 30 per cent, even as the overall volumes have managed to hold up.

Typically, high turnover, coupled with low delivery volumes, signals heightened trading activity, but also lack of confidence in the market direction.

“Where there is no clear trend in the markets, traders would like to square up their positions, resulting in lower delivery per cent. On the contrary, a bullish market would result in higher delivery per cent as traders would be more confident of carrying forward their trades overnight,” said Deepak Jasani, head of retail research, HDFC Securities.

Market players say the overall volumes have been on the rise as the market has become quite volatile.

The government’s surprise decision to lower corporation tax had sent the markets into a tailspin. The benchmark Nifty had seen an unprecedented 900-point move, while the Sensex swung 3,000 points during the month. The Bank Nifty index and other individual stocks had seen even sharper fluctuations as investors tried to re-price assets, following the tax cut amid a weak macroeconomic backdrop.

Also, the scare around the health of financial companies had added to the uncertainty.

“Some of the news flow related to the finance sector is creating fear among investors. And this is leading to a lot of volatility in the market.  It is the few bad cases which are grabbing headlines and undermining the liquidity situation,” said Vinod Karki, vice-president, strategy, ICICI Securities.

Market players say a sustained uptick in delivery-based volumes could be a harbinger of improved market sentiment.

“Delivery-based trades will go up when large overseas investors return to the markets. That could probably be a sign that the bearish undercurrent is waning,” said an analyst.