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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.

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