Investors turn speculators; Delivery ratio falls to 44.5%

MUMBAI: It has been the buyers’ market for long, except for the past few days when PN-triggered hectic selling spooked the market like never before. But not many know that there had actually been a decline in propensity to make delivery-based buying even while the Sensex was on a dream run.

A study on trading patterns in the current market showed that delivery ratio has fallen from 50% in August to 44.5% in October (till 17th) in the cash segment of the Bombay Stock Exchange (BSE). Brokers say this is because investors tend to develop speculative interest after share prices reach sky-high levels.

Such a tendency is likely to grow with the market turning highly volatile due to repercussion of fresh developments relating to politics and the market, feel brokers. The delivery ratio is calculated by dividing number of shares delivered by total quantity of shares traded.

Delivery ratio has been much lower than the market average in some of the high momentum stocks, reflecting large speculative interest in these counters. For instance, Reliance Natural Resources (RNRL) has attracted delivery volumes of between 14.7% and 22.9% while the average delivery ratio for all the stocks traded on BSE was between 39.1% and 49.8% on daily basis in the current month. The stock soared 83% to Rs 94 in the last one month.

“Low delivery ratio indicates that a lot of intra-day trading is happening in the market. When the market is highly volatile, it does not make sense for many to hold on to shares for a longer period as intra-day fluctuations offer good opportunities to make quick gains,” said Karvy Stock Broking president Ambareesh Baliga.

Apart from RNRL, the list of stocks with below average delivery ratio included few other Reliance group (Both Mukesh and Anil Ambani) shares like Reliance Industries, Reliance Energy, Reliance Communications and Reliance Capital. On Thursday, these counters attracted delivery-based volumes between 22.5% and 24.8% against the overall ratio of 44.5% on BSE.

Private sector banking heavyweight ICICI Bank saw the lowest delivery ratio of 3.9%, a sharp decline compared with the previous days. The absence of delivery-based buying was attributed to generally bearish sentiment towards banking sector stocks on Thursday.

There was a major selloff in banking sector stocks on fears that RBI may hike cash reserve ratio (CRR) at it mid-term review of annual policy on October 30. The BSE’s Bankex crashed 573 points, or 6%, to end at 9,035 on Thursday. Some brokers observe that even retail investors have been participating in day trading and contributing to rising non-delivery ratio.

“Retail investors do not have a significant impact on delivery volumes as their appetite to take delivery on an continuous basis is relatively smaller. However, the rapid rise in non-delivery volumes is certainly influenced by this segment,” said Churiwala Securities director Alok Churiwala.

Unlike low delivery ratio stocks, many other blue-chip shares witnessed a good amount of delivery-based buying. Tata Steel, Hindustan Unilever, HDFC and Bajaj Auto were notable examples which attracted ratio as high as 88 to 98% on Thursday. The high ratio could be on account of large buying from foreign institutional investors, who normally buy with long-term perspective, according to brokers.