Cash market volumes surge to 14-month high in June amid a bull run

Trading turnover in the equity cash segment in June rose to its highest level in 14 months amid buoyancy in the secondary market. Rising for the third straight month, the average daily turnover (ADTV) for both the National Stock Exchange (NSE) and the BSE cash segment stood at Rs 67,491 crore —the most since April 2022.

On a year-on-year basis, ADTV was up 42 per cent, underscoring a turn in market sentiment.

Meanwhile, the ADTV for the derivatives market recorded a fresh high of Rs 259 trillion (notional turnover for the options segment), rising for an eighth straight month.

In June, both the S&P BSE Sensex and the NSE Nifty had surpassed their all-time highs set in December 2022. Earlier, the broader market mid- and small-cap indices had climbed to record levels.

The Nifty50 rose 3.5 per cent in June, while the small- and mid-cap indices surged between 6 per cent and 7 per cent.

“We are experiencing a broad-based rally in the markets at this point, largely because of favourable macros. The domestic economy, as well as corporate earnings, continue to do well, and that has led to a rally in mid-caps and small-caps, which, in turn, has led to a recovery in cash volumes,” said Pankaj Pandey, head-research, ICICI Securities.

Although retail participation in the secondary market has not improved considerably, there has been a surge in contract value on account of price appreciation, pointed out experts.

However, if stocks sustain gains, the market could once again see frenzied buying by retail investors, they added.

“We have seen a 15-20 per cent price jump from recent lows in many stocks. This has led to an increase in the volume traded for one lot of a company’s shares. We have seen high volume and high turnover in sectors like banking and automotive. On analysing, we find that open interest has not moved up much, but turnover is high,” observed Rajesh Palviya, senior vice-president, technical and derivatives research, Axis Securities.

According to data from the NSE Market Pulse report, retail investors continued to be net sellers in May for the third consecutive month, with a net outflow over the three months amounting to Rs 1.96 trillion. The exchange is yet to release the data for June.

However, the active investor base on the exchange rose to a five-month high of 8.4 million in May — an improvement from the steady drop over the previous four months.

The report notes that the direct participation by retail investors has been moderating since July 2022, but new investor registrations and a surge in retail share in the overall cash market turnover have also indicated strengthening.

After a sharp sell-off in the market between December 2022 and March 2023, retail investors turned cautious towards equities. However, the sharp upmove from March lows has caught most investors off guard. Market players said many active investors were on the sidelines as they didn’t expect the stocks to rise so quickly.

“We sense that the broad-based rally will continue, but some sectors may continue to experience consolidation. Banking has already seen consolidation. Information technology has already witnessed price underperformance, and we see no further damage, although we will wait for the results before firming up the view. A majority of the Nifty constituents are looking better at this point. By Diwali this year, 20,400 levels are on the cards for the Nifty50,” added Pandey.