NSE’s cash turnover dives 20%

Investment patterns saw a behavioural change in the financial year gone by, with the volatility in the markets unnerving investors.

Cash turnover at National Stock Exchange (NSE), which dominates the segment, took a near-20% plunge in FY23 — the sharpest drop in 11 years since a 21.4% slide in FY12. The cash turnover at Bombay Stock Exchange (BSE) slumped 23.1%, with the combined drop in the cash market being 19.9% for both exchanges.

“The cash market is now being used as an investment mechanism rather than for trading, because people are now trading in options given the transaction costs are lower, and because of the limited margin requirements,” said Chandan Taparia, head (technical & derivatives research) at Motilal Oswal.

In FY23, the NSE’s cash market turnover was Rs 133 trillion, while the average daily turnover stood at Rs 53,434 crore — a 20% drop from FY22 after six continuous years of growth. The NSE has a 92.8% share in the cash market.

In contrast, that of the BSE — which commands a mere 7.2% share — was just Rs 10.28 trillion with an average of Rs 4,132 crore, down 23.4% since FY22.

On a monthly basis, the NSE recorded an average daily turnover of Rs 68,013 crore during April 2022, the highest for FY23; the lowest was Rs 44,608 crore for June 2022. The highest average in FY22 was Rs 81,361 crore for October 2021, while the lowest was Rs 53,597 crore for December 2021.

Analysts say the rising volatility in the markets has led to investors shying away from trading in stocks and turning to the F&O segment, given the limited margin requirements.

“Investors are stuck with positions, especially because there has been no follow-up rally in the mid- and small-cap segments. The markets are missing a broader range,” added Taparia.

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Market players and brokerage reports suggest options contribute close to 75% to the NSE’s trading revenue, a figure that earlier stood in the 30-35% range.

Not only that, a recent study by Sebi revealed that the number of individual traders in the equity F&O segment spiked 500% to 4.5 million as of FY22-end, from just 710,000 in the pre-pandemic FY19. What’s more, 90% of these individual traders incurred net losses.

Data shows that the F&O segment is completely dominated by NSE with a market share of 99.1%, with only 0.9% with BSE.

The NSE’s total turnover in the segment was Rs 38,222 trillion, up 125.5% in FY23, after having shown a phenomenal 575% rise in FY22 over FY21. Average daily turnover stood at Rs 153.5 trillion, up 125.6% since FY22.

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“The exodus by foreign institutional investors (FIIs) in the last 18 months has hit market sentiment and thus impacted the cash market turnover. Another factor is the declining retail participation, especially between October and February, because of the increased volatility,” said Kranthi Bathini, director (equity strategy) at WealthMills Securities.

In the last two financial years, FIIs have pulled out a total of $23 billion. While foreign investors pulled out $6 billion in the previous financial year, the withdrawal was much more at $17 billion during FY22.