Although the market is trading at a record high level, the cash turnover on the exchanges has been consistently coming down since January.
ET Intelligence Group: Although the market is scaling new peaks every other day, a persistent murmur among retail investors is that their portfolio returns do not mirror the unprecedented rise in the benchmark indices. Retail investors hold 7.1 per cent of shares in the BSE 200 companies and their holding value dropped to $130 billion in June 2018 quarter from $140 billion in December 2017.
The anomaly can be attributed to the narrowing depth in terms of trading volume and rising concentration as reflected in the lesser number of stocks participating in the rally.
According to Credit Suisse, the current rally in the Nifty has been the most concentrated performance since 2015 with the top 10 contributing stocks comprising of 218 per cent of the index performance while the bottom 10 took away 95 per cent. The rally is turning out to be more concentrated due to investors’ quality preference amidst lowest global appetite for equity risk since 2011.
The five index heavyweight stocks such as Reliance Industries, HDFC Bank, HDFC, TCS and Infosys have contributed nearly 60 per cent to the Sensex gain of 14.2 per cent so far in 2018.
A concentrated rally has added to the woes of mutual fund (MF) managers who were underweight on these stocks. The concentration risk of institutional investors can be gauged from the fact that despite 2,732 traded securities on the BSE, the top 40 stocks held by foreign portfolio investors (FPIs), MFs and LIC account for 74 per cent, 63 per cent and 83 per cent of their respective portfolios in that order.
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The combined delivery volumes on the BSE and the NSE in August dropped to 33 per cent, the lowest in the past five years according to ETIG database. This was also below the five-year average delivery volume of 40.4 per cent. The low delivery percentage reflects waning interest of investors who buy and hold for a long-time. It also suggests that the volumes are mainly driven by traders who merely want to make a quick buck.
Although the market is trading at a record high level, the cash turnover on the exchanges has been consistently coming down since January. The average monthly cash turnover in August was 15 per cent lower than the January level of Rs 42,608 crore.
Even the participation from the institutional investors has been quite muted. Foreign portfolio investors and domestic mutual fund participation in the total turnover in August was 14.1 per cent and 5.9 per cent compared with an average of 17 per cent and 9.3 per cent, respectively, a year ago. With no significant investment triggers in the near-term, FPIs either are deploying fresh money in existing stocks or exiting from several counters due to elevated valuations. FPIs have been net sellers worth $550 million in Indian equities so far in 2018.
