Delivery percentage improved in 2022 amid new margin norms, shows data

The delivery percentage in 2022 improved, rising to 41.4 per cent - the highest since 2016. Investors typically tend to seek delivery for those stocks in which they see a long-term investment opportunity.

A bullish market often results in higher delivery. An uptick in delivery-based volumes is considered a signal of improved sentiment. But the improvement in delivery percentage in 2022 happened in a year when market returns were muted.

Although Indian markets outperformed global peers, the gains were not significant for investors engaged in cash trading.

In 2022, the S&P BSE Sensex rose 4.4 per cent and the National Stock Exchange (NSE) Nifty50 4.3 per cent.

The gains in the broader markets were fewer.

The BSE MidCap rose 1.4 per cent and the BSE SmallCap fell 1.8 per cent.

The average daily trading volume (ADTV) for the cash segment fell 18 per cent year-on-year to Rs 61,392 crore (NSE and BSE combined).

Market experts attributed the rise in delivery percentage in a volatile year to new margin norms.

The upfront margins were first introduced in 2020 and the thresholds raised in a phased manner. Traders were mandated to keep 25 per cent of the margin money between December 2020 and February 2021. This was upped to 50 per cent between March and May 2021, and then to 75 per cent from June to August 2021. The limit was raised to 100 per cent in September 2021.

Leverage has been reduced because of upfront margins on the cash market, diminishing trading instinct.

“Intraday leverages got removed last year. Until last year, leverages were 20-30x and people were doing intraday. Now, it is capped. Overall equity turnover has reduced,” said Nithin Kamath, founder and chief executive officer (CEO), Zerodha.

Prakarsh Gagdani, CEO, 5Paisa Capital, said because of new margin norms, the delivery percentage started moving up from last year.

“The trading volumes switched to derivatives. We have less volume on the trading side in the cash market and more delivery. Earlier when upfront margins were not applicable, the broker was allowed to give any type of exposure, even in the cash market, to trade. That’s the reason why intraday volume in the cash segment used to be very high. People have shifted trading to the derivatives segment,” said Gagdani.

The ADTV for the futures and options segment (NSE and BSE combined) for 2022 stood at Rs 125 trillion (notional turnover), up 117 per cent from the previous year.

The delivery percentage is expected to be in the range of 40-50 per cent and is expected to rise if there is a bullish trend in the market.

“If the market is bullish, the delivery percentage tends to go up,” added Kamath