Trading activity picks up pace in May amid buoyancy in the markets

Cash segment turnover hits 8-month high in May

Trading activity has picked up pace amid buoyancy in the markets. The average daily trading turnover for the cash segment in May stood at Rs 63,774 crore — the highest since September 2022. Besides, it reported a month-on-month (MoM) increase of 16.5 per cent — the most since August.

The average daily trading turnover for the futures and options (F&O) segment (for the NSE and the BSE combined) rose to a new high of Rs 252 trillion from Rs 242 trillion in April.

Trading volumes tend to have a strong correlation to the stock price performance and the latest volumes are reflective of bullishness in the market, say industry players. The Nifty Midcap index has already hit a new high, while the benchmark Sensex and the Nifty50 index are hovering close to their lifetime highs registered on December 1.

“The biggest reason for cash-market volumes going up is the upmove in the markets,” said Prakarsh Gagdani, CEO of 5paisa.

The Sensex and the Nifty rose more than 2 per cent each in May, extending their three-month gains to about 5 per cent.

The broader market performed even better: The Nifty Midcap 100 index rose 6.2 per cent, while the Nifty Smallcap 100 index added 5.1 per cent — stretching their three-month gains to 10 per cent and 7 per cent, respectively.

Industry players say the sustained upmove in the market amid buying support provided by foreign portfolio investors (FPIs) is once again fuelling retail appetite for trading. FPIs bought shares worth Rs 43,838 crore in May, the most since August. In the past three months, they have invested over Rs 70,000 crore in domestic stocks.

“High networth individuals (HNIs) and retail start to participate when there is strong momentum in the markets. Moreover, mutual funds were also sitting on cash, and they too were scouting for an opportunity to invest,” said Dhiraj Relli, MD & CEO, HDFC Securities.

“Barring a few sectors, the overall March-quarter earnings season turned out to be good. Moreover, the macro environment has improved and the high-frequency indicators are looking good,” he added.

The rise in the cash-market volumes is a positive sign for the brokerage industry as they earn higher brokerages in this segment compared to F&O.

The MSCI rebalancing which got implemented on May 31 also boosted trading turnover, pointed out industry players.

“We saw cash volumes rising to Rs 1.4 trillion on the last day of the previous month due to the rebalancing of indices,” said Jimeet Modi, founder & CEO of Samco. “For the volumes to move up from here, the market breadth has to turn more favourable. Right now it is the top 20 -30 per cent of the market that is trending higher.”

Experts say the trajectory of the monsoon and FPI flows will have a bearing on the market and on trading volumes.

“A normal monsoon could propel the markets to new all-time highs and drive up cash-market volumes further,” said Gagdani.

“If FPI flows in June are also in the range of Rs 30,000-40,000 crore, we will see most indices hitting new highs,” added Relli.