'Investors aren't sure about the impact of demonetisation'

Daily turnover down by a third in December compared to previous months, reports Pavan Burugula.
Illustration: Dominic Xavier/Rediff.com

Trading volumes have slumped in December as the markets have remained range-bound, in the absence of a major trigger.

The turnover in both the cash and derivative segments is down 30% from the previous months.

The benchmark BSE Sensex has moved more than 1% on only two of the previous 15 trading sessions.

The index has declined 400 points or 1.5% in this period.

While the average daily turnover in the futures and options segment has fallen by 30% to Rs 3.12 lakh crore, that of cash markets is down 28% to Rs 18,568 crore, shows data compiled by Business Standard.

Market participants say the decline in the volumes is largely on account of the absence of any big trigger.

Between September and November, trading activity rose 20% over previous months.

This was on the back of an increase in market volatility due to uncertainty over events like the US elections, the Federal Reserve meeting and the surprise demonetisation announcement.

"In the past few sessions, we have seen a directional vacuum. Investors aren't sure about the impact of demonetisation," said Pankaj Pandey, head of research, ICICI Direct.

"Further," he added, "there has been no major trigger even on the global front. Investors are in a wait and watch mode. This is why the price movement in various stocks is limited."

Some market participants also believe the volatility of the earlier three months has driven off the volumes, especially from the non-institutional side.

"Retail (non-wealthy individuals) and high net worth clients are shying away from market participation, due to the recent volatility," said B Gopkumar, chief executive, broking and distribution, Reliance Capital.

"Their participation has dropped by 20% to 25% in the past few days," he added.

Experts also say December is a relatively tepid month for the markets, especially the last two weeks, as a majority of foreign investors go on vacation.

As foreign institutional investors (FIIs) are big participants, their absence dents the volume.

"In the past three months, there was a lot of activity in the markets due to FIIs. In fact, all the emerging markets had witnessed a bout of selling by FIIs during the period, which had pumped up the turnover," Pandey added.

Participants see the volumes being subtle till mid-January, due to lack of any major trigger.

These could again pick up once the December quarter earnings season is underway and in the run-up to the Budget.

"The markets currently lack big triggers. Until October, we were seeing positive consumption trends, along with a good monsoon and the pay commission. However, due to demonetisation and other global factors like the US elections, the markets have lost a lot of steam," said Vaibhav Agrawal, head of research, Angel Broking.

"I think they will remain range-bound until the Union Budget," he added. "A positive announcement regarding direct/indirect tax benefits and increased spending in the agriculture or infrastructure sectors would be seen positively."