August freeze: Cash turnover caught in valuation cold snap, shows data

But derivatives trading turnover thaws, rising as investors warm up to short-term bets

The equities cash market turnover declined for a second consecutive month in August, reflecting investor scepticism due to valuation concerns. Conversely, trading turnover in the derivatives segment — where investors engage in short-term punts — edged higher, buoyed up by sustained market optimism.
 

The average daily trading volume (ADTV) for the cash segment fell by 13 per cent to Rs 1.31 trillion, marking the lowest level since May. In contrast, the ADTV for the futures and options (F&O) segment rose by 1 per cent to a new record high of Rs 502 trillion.

However, F&O trading volumes are expected to decline as stricter trading and stock selection rules come into effect. The cash segment turnover may also be impacted as zero-cost brokerages are projected to raise their broking charges following a Securities and Exchange Board of India directive to eliminate slab-wise fee structure.
 

The new true-to-label rules, effective October 1, will affect the revenues of discount brokers, who currently profit from the spread between what they charge customers and what they pay the exchanges.
 

The drop in cash segment turnover — which is typically used for long-term investments — can be credited to moderating market returns and high valuations, making retail investors more cautious. Despite the Nifty gaining 1.1 per cent in August, smallcap and midcap indices showed subdued growth. Market experts attribute the decline in cash segment transactions to concerns about overvaluation and potential market correction. “There’s a sense that markets are overvalued and could collapse at any moment,” said Prakarsh Gagdani, chief executive officer of Torus Financial Markets. However, robust flows from domestic institutions, which were net buyers of Rs 48,347 crore in August, helped mitigate the downside.