How macro headwinds, volatile markets, and waning WFH push cash segment trading volumes to a corner – The Economic Times

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SynopsisThe traded quantity in June has come down 54% in one year. The turnover on NSE also dropped to INR9,81,367 crore, the lowest since March 2020. The number of retail investors trading on the exchanges also dropped sharply in May, from the peak seen in January.

Tushar Choksi, a 44-year-old KPO industry executive, is taking it slow nowadays. The frequency of his stock trades (cash market) is down to once in a fortnight, from two-three a day when he started trading actively in 2020.

Choksi was introduced to stock trading by his sister and brother-in-law during the lockdown-induced work from home (WFH). And since he catered to US clients, his work commenced only later in the day, giving him the leeway and time to trade with focus.

But a lot has changed since then. The markets seem to have hit the pause button after a stellar rally that started following the dizzying lows of March 2020.

Choksi isn’t the only one to go slow with trading.

Data from NSE shows that the traded quantity in June 2022 stood at 39,701.5 million, down 54% from 86,417.5 million a year ago. The turnover on NSE also dropped to INR9,81,367 crore, the lowest since March 2020. The turnover on BSE also fell to INR62,661 crore, the lowest since October 2020.

Cash market at a glance@2x

The other low
“Not only have new demat account openings come down, but we are also at two-year lows in terms of trading volumes on the exchanges. Markets are volatile and the very active intraday traders who trade on Futures and Options (F&O) still have opportunities to trade,” Nithin Kamath, CEO of discount broking firm Zerodha told ET Now earlier this month.

“But investing is down 20%-30% for someone like us who added a lot of accounts. On the overall exchange level, those drawdowns are more. We are almost at two to two-and-a-half year lows in terms of equity trading volumes as well,” he added.

According to RBI’s feasibility report, the number of retail investors trading on the exchanges dropped sharply in May, from the peak seen in January.

Retail investors trading on the exchanges@2x

The benchmark Nifty 50 has dropped nearly 6% for the year to date, while NSE mid-cap and NSE small-cap indices have eroded more than 6% and 20%, respectively. The market is witnessing a downtrend and is also showing volatile movements.

Foreign institutional investors (FIIs) have been net sellers of Indian equities for the tenth month in a row. For the year to date, they have sold a net of INR 2.9 lakh crore of Indian shares. On the other hand, domestic institutional investors (DIIs) have been net buyers of Indian shares to the tune of INR2.4 lakh crore in the same period.

Meanwhile, retail investors seem to be going in for some safer bets amid the markets’ roller-coaster ride.

When market usually reverses gain, mid- and small-cap stocks get hammered more than their larger peers. The downside could be relatively limited for the large-cap pack. Some investors are churning their investors in favour of large-cap stocks.

“My strategy has changed now. Until three months ago, I would trade stocks to make profits soon, and there were quite a few mid- and small-cap stocks on my radar. Now, I look at fundamentally strong frontline caps to have enough cushion,” says Vivek Vichare, 38, an IT professional.

“While my trades have decreased, I did not stop my SIPs in mutual funds. The investment journey continues,” he adds.

The pain points
A lot has changed for the markets and investors in the last few months.

While the worst of the pandemic seemed to be behind us, central banks that had loosen their liquidity taps to help global economies tide over the drastic economic impact of lockdowns have now tightened their stance and turned hawkish to deal with another headache – inflation.

The Russia-Ukraine crisis remains a thorny issue, and the crude oil is currently boiling above USD100 a barrel. The rupee has fallen below the psychologically important 80-mark against the US dollar.

Of course, markets are witnessing a dead cat bounce over the last few sessions, bringing back some interest from investors who primarily wanted to book profits and exit, dealers say.

Globally, too, pessimism seems to be the ruling the investors’ mindset. The BofA Fund Manager Survey for July mirrors dire level of investor pessimism. It says expectations for global growth and profits are at all-time lows, cash levels at 6.1% were the highest since October 2001, and equity allocation lowest since the Lehman crisis.

“Cash market volumes shrink when markets correct as positions get stuck and investors generally don’t want to sell at a loss. HNIs on the other hand have been cautious due to macro headwinds. That has hurt cash volumes across the industry,” says Ashish Nanda, joint president at Kotak Securities.

F&O trades rise
Meanwhile, F&O volumes have risen, and total derivatives contracts traded in June came in at 2.957 billion, the highest ever, due to rise in speculative activity.

“A few years ago, for every 100 active cash market traders, there were 10 derivative traders. That number has now gone up to 25,” says Nanda of Kotak Securities.

“Cash market is not giving them the rewards and Derivative market to an extent is directionally agnostic. Derivative volumes are also fueled by the new generation that wants to try new stuff, and follow influencers.,” he adds.

During the boom time of the markets, people flocked to learning the tips and tricks of derivatives trade through online coaching, apps, and YouTube videos.

“Over the last couple of months, number of students that getting enrolled have come down. Even those who wish to join want to make quick bucks like they saw or heard in 2020. They open demat account, and want to directly learn F&O, as they feel they missed the bus,” says Jyoti Budhia, a trader and a trainer.

Budhia warns that plunging into derivatives trade just because there are less opportunities in the cash market, could lead to disastrous consequences.

“Everything works on tips, free tips. They take up trades on the basis of tips, without understanding why. While this may have worked in a bull run, trading in a volatile market requires better understanding,” she adds.

“A few years ago, for every 100 active cash market traders, there were 10 derivative traders. That number has now gone up to 25.”

— Ashish Nanda, joint president at Kotak Securities

WFH wanes, so are trades
Is the falling market only reason for the decline in trading volumes?

Perhaps not.

The rush of retail investors amid a rising market had also coincided with a Covid-19-induced lockdown, which meant employees were working from home. With the waning threat of the virus, many companies are now calling employees back to office. This has meant less leeway and flexibility for such employees to now resort to stock trading.

Also, the job market and the opportunities therein have gotten better. Especially, the IT sector saw a boom in hiring and good pay hikes. This has made people busier with their jobs, living less time to monitor stock trades/investments on a real-time basis.

“I have less leeway to trade right now, as there is lot more work on our plate than before. I am still monitoring my investments but with less frequency than before. There is lot more work on our plate,” says Chintan Kapadia, 38, who works in the IT industry.

(Graphics by Manali Ghosh)

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