Trading volume dips amid market turmoil, retail investors take a hit

ADTV for cash segment lowest since Feb 2020; retail participation hit, say analysts

Cash-market volumes have slipped to pre-pandemic levels this month, even as equity derivative volumes hover close to record highs. The average daily turnover (ADTV) for the cash segment was around Rs 48,011 crore until June 22, the lowest since February 2020, when it was below Rs 40,000 crore.

This represents a 22 per cent month-on-month decline, and a 35 per cent fall when compared with April. Meanwhile, the ADTV for the equity derivatives segment this month is around Rs 106 trillion (notional figure).

Industry players said the spike in volatility seen in the market this month had taken a toll on retail investors. Meanwhile, a host of regulatory changes had led to a shift from the cash market to derivatives, they added.

Last week, key equity indices hit their lowest levels in at least 13 months after a steep 75-basis point hike by the US Federal Reserve triggered a sell-off in risky assets.

“Retail investor participation is showing signs of a slowdown,” says Vijay Chandok, managing director (MD) and chief executive officer (CEO), ICICI Securities — the country’s largest listed brokerage.

“Given the trend of declining cash delivery, as well as a change in the mix of intraday versus cash delivery, players that are strong in the cash delivery segment are likely to be impacted more, and those more dependent on the futures and options segment are seen to be better positioned,” he adds.
 

Domestic markets have seen wild swings after logging record highs in October 2021 — dropping sharply in December and rising in January, then dropping again in March before rising in April. In the past two months, stocks have largely moved downwards amid rising bond yields. Brokers said such volatile conditions had discouraged investors.

“Retail investors are bullish by nature. So, unless markets are on an upward trajectory, retail participation reduces. This will be a tough year, and volatility will be at a peak,” says E Prasanth Prabhakaran, MD and CEO, YES Securities.

Another factor is the rout in small- and mid-cap stocks hitting retail investors particularly hard. Both the Nifty Smallcap 100 and Nifty Midcap 100 are firmly in bear territory, having plunged over 30 per cent and 20 per cent, respectively, from their peaks.

“Retail sentiment has been affected as the rises after the October 2021 sell-off have been short-lived and are getting sold into, mainly by foreign players. The small- and mid-cap space is where most retail investors have exposure,” says Deepak Jasani, head of retail research, HDFC Securities.

The dip in domestic investors’ participation can further accentuate the fall in markets, fear analysts. Since October, foreign portfolio investors have yanked out a record $40 billion from domestic stocks. Such large outflows have partly been offset by strong domestic inflows — both through the mutual fund (MF) route and via direct equity investing.

So far, inflows into equity MFs have shown little signs of slowing down, thanks to recurring inflows via systematic investment plans. However, with direct equity inflows reducing amid an extended stock-market rout, it is only a matter of time before MF flows moderate, say market players.