Action is slowly shifting to low value counters as players look to balance their portfolio amid falling volumes.
Fund managers and brokers alike are suggesting that investors exit over-valued scrips and buy low and fairly valued companies, which offer a better upside.
Market participants attributed falling volumes to the wait and watch policy adopted by major players in the face of uncertainty arising from high international oil prices and domestic inflation numbers.
A closer look at the turnover reported by the Bombay Stock Exchange and National Stock Exchange in the last eight months suggests that players have either kept away or are more interested in trading in low value counters.
Action has definitely shifted to mid-cap counters, said some brokers, but added that only in good companies. A senior fund manager with Motilal Oswal Securities, said, "Investors must avoid investing in over-valued scrips and look to build investment portfolios with a mix of fair-valued and under-valued companies, with the latter forming the major component.
Nimish Shah, director and CEO, Parag Parikh Financial Advisory Services added, "Investors should look for companies where valuations are at multi-year lows."
Though some sections of the market subscribe to the view that mid-cap counters may see some selling pressure soon.
Ritesh Sheth, investment analysts, ASK Raymond James Securities, said, "Mid-cap counters have had a good run but a majority of the counters have already reached their fair value."
The volatility witnessed in intra-day trades has allowed players to churn their portfolios, book profits in counters which they had been holding over a period of time and shift to better valuation counters, fund managers said.
The head of research of a local brokerage house said, "Some are increasing the cash components in their portfolios, looking for a strong impetus before entering the market."
Data show that turnover in the cash segment of both the major bourses has dropped in the last three months.
In fact, it has been falling almost consistently from the highs recorded at the beginning of the year.
The combined average daily turnover on the BSE and NSE was Rs 5,602.52 crore (Rs 56.02 billion) in August against Rs 6,017.99 crore (Rs 60.17 billion) in July and Rs 5,452.92 crore (Rs 54.529 billion) in June.
Compare this to the total turnover of Rs 6,896.28 crore (Rs 68.962 billion) in May, Rs 7,289.31 crore (Rs 72.893 billion) in April, Rs 7,072.18 crore (Rs 70.721 billion) in March and as high as Rs 8,428.86 crore (Rs 84.288 billion) in February and Rs 9,515.99 crore (Rs 95.159 billion) in January.
Foreign institutional investors and domestic mutual funds also seem to have eased up on the equity market.
According to data from the Securities and Exchange Board of India, FIIs were net buyers of Indian shares worth Rs 2,794.20 crore (Rs 27.942 billion) in August but this also includes the investment in the TCS issue.
Earlier, FIIs had made net purchases of Rs 1,183.10 crore (Rs 11.831 billion) in July, Rs 310.60 crore (Rs 3.106 billion) in June and net sales of Rs 3,250.50 crore (Rs billion) in May. This comes after FIIs were net buyers of more than Rs 18,500 crore (Rs 185 billion) in the first four months of 2004.
Domestic mutual funds have been net sellers in the last three months, selling Rs 156.67 crore (Rs 1.566 billion) in August, Rs 432.41 crore (Rs 4.324 billion) in July and Rs 261.30 crore (Rs 2.613 billion) in June.
They were net purchasers of Rs 1,658 crore (Rs 16.58 billion) in the first five months of 2004.