Speculators tighten grip on markets

Cash market volume slumps to 11%.

Speculators are having a field day in Indian equity markets, with cash market volumes showing a sharp decline.

The daily average cash market turnover went down to 11 per cent of the overall volume in April as against 18 per cent a year ago. Analysts say cash market volumes are at a historic low.

However, the futures & options (F&O) turnover has risen from 82 per cent to 89 per cent in the period, with index options attracting the highest inflows. This suggests a large number of investors have moved from the cash market to the index options segment of the derivatives market.

The global average for derivatives to cash turnover is close to 2.1 times (66 per cent for cash and 33 per cent for derivatives), according to a report by Espirito Santo.

Raamdeo Agrawal, director & co-founder of Motilal Oswal Financial Services, said, “This shows the markets are in the grip of speculators. This will kill cash market activity, causing a lot more volatility”.

Senior industry analysts said participation by high net worth individuals (HNIs) and retail investors was very low. This was due to lack of arbitrage opportunities, the reason being sideways market movement, they said.

Sameer Kamath, senior vice-president, corporate planning, Motilal Oswal Financial Services, said historically cash volumes had been 25-30 per cent of the total turnover. They fell to as low as 11 per cent this quarter as options volumes grew disproportionately, he said.

Kamath said there were huge inflows in index options from HNIs, proprietary traders and retail investors, causing the segment to grow over 100 per cent year-on-year. This was because brokerage in options was very low at 0.017 per cent and charged only on the option premium as against 0.125 per cent in equity, he said.

Market movements have been rapid, mostly sideways, without any clear direction. Therefore, investors may not find it economical to hold cash and are preferring options, says Kamath.

Earlier, retail investors and HNI traders were active in the cash market as it provided arbitrage opportunities.