Stretch marks on rally: Mkt has legs, trading volume still finding its feet

April's uptick signals a market stirring, with FPIs putting a spring in its step

April saw the second consecutive month of growth in average daily trading volume (ADTV), driven by an ongoing market rally. The futures and options (F&O) segment posted a 4.5 per cent month-on-month (M-o-M) increase, reaching ₹368 trillion, while the cash segment’s ADTV rose 2 per cent M-o-M to ₹1.06 trillion. In March, both the F&O and cash segments had seen sharper M-o-M increases of 22% and 12%, respectively.

 

This uptick reflects a 3.5 per cent rise in the Nifty 50 index in April, following a 6.3 per cent gain in March. However, this rebound follows five months of continuous declines, with the Nifty still 7 per cent below its peak. Midcap and smallcap indices are also 10 per cent off their highs.

 

Despite the growth, ADTV for both the cash and F&O segments remains over 30 per cent below their peaks from June and September 2024, respectively. The market’s downturn and stricter F&O trading regulations have held back volumes. 

 

A revival in foreign portfolio investor (FPI) flows has buoyed up investor sentiment, according to market participants. On Friday, FPIs purchased shares worth ₹2,770 crore, marking their 12th consecutive session of net buying — the longest streak in nearly two years. Over these 12 sessions, FPIs have injected ₹40,157 crore into the market.

 

Experts suggest that trading volumes could continue to rise if the market sustains its recent momentum and the Securities and Exchange Board of India (Sebi) holds off on tightening F&O trading regulations.

 

In February, Sebi proposed changes, including a revised method for calculating open interest, adjusting marketwide position limits, and imposing new caps on single stocks and index derivatives. The regulator is currently reviewing market feedback on these proposals.