Street struggles with low volume,sharp swings

Turnover Down To Rs 18k In H1 This Year From Rs 25k In H2 Last Year

SHARP fluctuations in share prices over the past couple of months have sparked a vicious circle of lower volumes and more volatility. As trading volumes fall, impact cost — the variation from the ideal order execution price — for investors rises. If an investor ends up paying Rs 101 for a stock quoting at Rs 100 on the screen, or receives Rs 99 by the time his sell order is through, the impact cost is 1%.
   Dealers say small buy or sell orders are causing sharp movements in stock prices, of late.
   "Given the uncertainty in global markets, most of the large traders and retail clients are playing safe," says Rahul Rege, business head-retail, Emkay Global Financial Services.
   "There is very little leverage in the market and margin funding is not finding enough takers. If the current trend persists, retail participation will further decline. There is not enough depth in the market leading to high impact cost," he said.
   In the second half of the previous year, the daily average turnover in the cash segment of both BSE and NSE was about Rs 25,000 crore. This has fallen to about Rs 17,000-18,000 crore in the first half of this year. The share of the cash market turnover in the total turnover has gone down from one-fourth in 2007 to less than one-fifth in the current quarter. A similar trend is playing out in the derivatives segment as well.
   "Retail investors are trading lesser with each passing day," says Vinay Agrawal, executive director (equity broking), Angel Broking.
   "In January, 10-11% of our active clients were trading on a regular basis. This has reduced to 7-8% in May and June," Mr Agrawal said, adding that low retail activity was the main reason for rising impact cost in mid-, and small-cap counters.
   The Sensex has been moving in a range of 16,000-18,000 for the past three quarters. While there was good demand for mid-cap stocks during the first quarter of this calendar, lack of liquidity in these stocks is deterring buyers. Dealers say that large orders in second-line stocks are difficult to execute because of lack of a counterparty.
   "Only a further correction or a major breakout will bring them back into the market," said a dealer at an institutional broking firm who did not want to be named.
   Analysts say that a rise in delivery percentage shows that day traders and arbitrageurs are completely out from the market, leading to low volumes in most stocks. Further, there are almost 600 stocks — nearly one-fifth of the total stocks listed on BSE in the 'T' or trade-totrade. The exchange includes stocks in this category to curb speculative activity, and only delivery-based transactions are allowed in the 'T' group.
   So, almost one-fifth of the total stocks listed on BSE constitute a turnover of about Rs 50 crore only.
   Broking houses are feeling the pressure of declining trading volumes in the cash market on their margins, as it is cash market trades that earn them the fattest commission.
   apurv.gupta@timesgroup.com