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Chart: NSE Volume To Nifty Ratio Near 6-Year Low

NSE Cash Market Volumes have been pathetic recently, clocking less than 10,000 cr. on average since March 2012. The numbers are bleak – they are the lowest since May 2007. (You have to discount the dip in early 2009 because the market was about 40% lower than today’s market, and thus the value traded would have been lesser temporarily)

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To give you a better idea, let’s divide the Nifty value with the volume in crores, so we can see a “NSE Volume to Nifty” ratio. This gives you an idea of how bad the situation is on the volume front.

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At 1.84, the ratio is at the lows of July 2006, which was the dip after the RPL IPO and when NSE raised margins and the market fell 30%. Right now the market has not fallen hugely, but volumes continue to suffer.

Key takeaways:

  • Low volumes means a sudden price move is not very trustworthy.
  • It also means that the markets can be moved by a sudden move. Stay wary of stocks that show huge moves but trade very little in terms of value.
  • This means the slump is not just in mutual funds (who complain the most about SEBI regulations killing them or whatever). It’s everywhere. Brokers hurt, Insurance companies hurt.
  • There will still be individual stocks that do well. Do not despair. (Piramal Healthcare, in this lousy market is up more than 25% in a couple months, on volumes that aren’t a surprise)
  • This is normal in the sense that there is fear in the markets. We don’t yet have panic (prices falling rapidly) but typically, when there is fear, it’s good for a stock buyer in the long term. A panic selling move now might just be an opportunity.

Disclosure: Short the markets. But that’s a very near term trade; is there more value in the long term? I don’t know yet.

  • Raja says:

    Hey Deepak,
    In a not so old post you said something to the effect “am holding one of those duds – Piramal Healthcare” while arguing against value investing. isn’t it ??
    Am not complaining, but still !!
    Regards
    Raja

  • Raja says:

    So, does that mean if it goes back to those levels again, it will become a dud again ? 😉

    • Absolutely – that’s what mark-to-market means 🙂 When it isn’t performing, it’s a dud. When it is, it’s good. Everything else is about random opinions that have a lot of emotional value, that’s all.

  • Raja says:

    They way i see it is (an opinion), the only thing that changed between then and now is more visibility of it’s earning from the DRG acquisition. Market which didn’t want to value cash in hand is now valuing certainty in future income of 850 crore in sales from the DRG this year. I guess profit figures are still not known.
    Don’t mind if it becomes dud again … hopefully it does 🙂