Cash market turnover hits 8-month high in May on market recovery

Equity cash volumes rose 9% month-on-month to ₹1.16 trillion in May, lifted by a rally in mid and small-cap stocks; F&O volumes declined due to tighter norms

Cash volumes in May surged to an eight-month high, driven by a broadbased recovery in equity markets.

 

The average daily trading volumes for the cash segment, combining the National Stock Exchange (NSE) and BSE, increased 11 per cent from the previous month, reaching ₹1.19 trillion.

 

This is the highest level since September last year, when it peaked at ₹1.3 trillion, but still 28 per cent below the peak of ₹1.65 trillion in June 2024.

 

According to experts, the surge has been driven by two key factors: A rise in underlying stock values and improved investor sentiment.

 

In contrast, the average daily trading volumes (ADTV) for futures and options (F&O) in May declined 5 per cent to ₹348.2 trillion (notional turnover), down from the ₹368.2 trillion in April.

 

“The lack of growth in derivatives volumes can be attributed to the measures to curb them. Additionally, trading restrictions have contributed to the decline. Previously, derivatives volumes would rise despite market fluctuations, but that trend has reversed. Since the increase in margin and lot size, coupled with heightened volatility, derivatives volumes have been going down. The spike in volatility over the past six months has led to losses for buyers and sellers of options,” said Prakash Gagdani, chief executive officer, Torus Financial Market. 

 

Cash volumes have been going up since March after hitting a 15-month low in February, when they dipped to ₹93,067 crore, the lowest since November 2023. Before this, they had declined in three of the preceding four months.

 

The recent rise in cash volumes is primarily driven by broadbased gains in the market, fuelled by several positive factors. These include the India-Pakistan ceasefire and optimism surrounding a potential trade deal with the United States (US). The 90-day pause in tariff hikes, announced by US President Donald Trump, was particularly beneficial for India, which has a limited exposure to US exports.

 

Additionally, the weakening of the dollar against global currencies has made emerging markets (EMs), including India, more attractive.

 

In May, the Nifty index gained 1.71 per cent while the Nifty Midcap 100 and Nifty Small Cap 100 indices rose by 6.1 per cent and 8.7 per cent, respectively.

 

“In the past three months, we witnessed broadbased gains across the markets. Midcaps and smallcaps, which had been beaten down, presented opportunities in undervalued stocks. Moreover, foreign and institutional investors have been net buyers in the past two months, and this bullish sentiment has influenced retail investors,” said Gagdani.

 

However, Gagdani cautioned against interpreting this as a sign of a sustained return of the retail investor or a resurgence in long-term investing based on cash volumes alone.

 

“This uptick is more cyclical in nature (than linear). We face uncertainties regarding US trade tariffs. The 90-day pause is set to end in July. Corporate results have yet to show significant improvement although they were not as bad as initially anticipated for the quarter. Additionally, the outcome of the monsoon remains to be seen.”