Delivery-based trades on the NSE decline due to valuation concerns

Experts said most investors are looking to cash in on intra-day opportunities in counters that are witnessing buying momentum

Investors are reluctant to take long-term positions this year after the spectacular gains in 2023. The delivery-based trades on the National Stock Exchange (NSE) have declined to below 36 per cent this year from an average of 38.1 per cent in 2023.

Investors tend to seek delivery for stocks where they see a long-term investment opportunity or tactical positional trade. Market participants attributed the fall in delivery share to elevated valuations, especially in the mid and smallcap segments.

The Nifty50 is trading at a one-year forward price-to-earnings (PE) multiple of 21.9 against a five-year average of 19. The Nifty Midcap 100 is trading at a one-year forward P/E of 27.6 against a five-year average of 23.3, and the Nifty Smallcap 100 is at 21.1 against a five-year average of 16.9.

“Valuations are stretched. Experienced investors would opt for trading rather than buying and holding stocks whose valuations are elevated,” said G Chokkalingam, founder of Equinomics.

Experts said most investors are looking to cash in on intraday opportunities at counters that are witnessing buying momentum.

“Investors are trying to make a quick buck with as little capital as possible. If you don't have the money in the futures and options (F&O), you tend to play in the cash sales, especially in stocks with lower denominations,” said Ambareesh Baliga, independent equity analyst.

There are also concerns about whether the bullish outlook for 2024 will hold amid rising geopolitical tensions and doubts over the trajectory of rate hikes. Equity markets gained last year amid hopes that the US Federal Reserve will cut its benchmark rates this year, with investors pricing as early as March 2024.

The rising geopolitical tensions in the Red Sea and the higher-than-expected inflation data in the US have made investors concerned about whether the rate cut trajectory will pan out the way they have priced. Moreover, if the tensions in the Red Sea end up as a full-blown conflict between the Western powers, it could choke the trading route and drive up commodity prices.

The Brent crude rose 2.6 per cent last week amid the stalemate. So far in 2024, the Nifty50 has risen by 0.8 per cent, the Nifty Midcap 100 by 2.8 per cent and the Smallcap 100 by 2.6 per cent.

Market experts are divided on the outlook for delivery percentages. While some argue that cash delivery would improve once the valuations moderate. Others say more and more investors prefer short-term trades.

“The delivery percentages are unlikely to improve. And even if investors are taking delivery, it doesn’t mean they are long-term investors. Traders can also take delivery on a particular day and sell after a few days, and it will show up in delivery,” said Baliga.