Market uncertainty shifts investors from delivery-based trades

Falling volumes of delivery-based trades implies that investors are keen on taking advantage of the intra-day rise and fall in prices

Fewer investors are opting to take delivery of the shares they purchase these days because of uncertainty about market prospects. Delivery-based trades are around their four-year lows, signalling low confidence  even about the short-term direction of the market.  

Delivery-based purchases are transactions which lead to shares getting deposited in investors’ demat account. In non-delivery based trades, stocks are sold off during the day. Investors watch this measure as a sentiment indicator.

According to data sourced by Business Standard, the average daily delivery volumes since 2009 had nearly halved to about 300 million shares as of last month.

“Investors are a bit cautious, as the stock price movements are highly volatile. Any negative news, whether big or small, leads to heavy price declines of 20-30 per cent, particularly in small and mid-cap stocks,” said Alex Mathew, head of research at Geojit BNP Paribas Financial Services.

Since January this year, average daily delivery volumes are down by 32 per cent. On the BSE, the average daily volumes have fallen 43 per cent; on the National Stock Exchange, they have declined 27 per cent.

Falling volumes of delivery-based trades implies investors are keen on taking advantage of the intra-day rise and fall in prices. “Not too many investors have a ‘buy-and-hold’ strategy now. Given the uncertainty, it is all about taking intra-day positions and booking profits or losses on the same day,” said Sandeep Nayak, executive director and chief executive of Centrum Broking.

Brokers said investors and traders were also choosing intra-day trading because of lower costs. Firms charge 0.03-0.05 percent as brokerage fees for intra-day trading, while it is 0.3-0.5 percent for delivery-based trading.   

Higher intra-day trading has resulted in overall trading volumes (equities and derivatives) on the exchanges rising. “Volumes on the exchanges have risen due to increase in trades in the derivative segment. But that does not mean anything because delivery volumes are low and affects the earnings of brokerages. Even at Angel today delivery volumes are down by about 50 per cent,” said Amit Majumdar, executive director at Angel Broking.

Poor Initial Public Offer (IPO) performances were another reason for low investor confidence, said analysts. Investors who had participated in the IPOs are sitting on heavy losses, as most of these issuances are trading well below their issue prices, they said.