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Charts & Analysis

The Bikini Statistics of Market Volume

I often get reminded of this quote (I don’t know the source):

Statistics are like Bikinis. What they reveal is suggestive; but what they conceal is vital.

When I watched TV yesterday at 2:30, the announcer was frantically announcing how volumes were "already 170,000 cr." and there was still an hour of trading to go.

Now 170,000 cr. is a lot of money – nearly one coal scam per day. So where is this obscene amount of money flowing?

I saw some thing like this:

BSE Cash: Rs. 3,000 cr.

NSE Cash: Rs. 11,000 cr.

NSE F&O: Rs. 155,000 cr. (around)

What,in F&O takes up that much volume? So today, I went to the NSE Live Market page. Remember, today’s expiry day and you get a LOT of Volume.

image

What they tell you on TV is the "Notional" turnover figure. For options, this is "Strike price" multiplied by number of options.

Effectively, if you buy a Nifty 5700 CE for Rs. 0.5 paise, a contract will cost you Rs. 25 (50 Nifty is the contract size). Yet, you would be taking a notional turnover of Rs. 285,000.

You paid Rs. 25, and you got a notional turnover of Rs. 2.85 lakhs!

So the 204,000 crores traded in the picture above is actually just Rs. 1087 cr. of real money. Statistics, bikinis and all that.

And then, the amounts aren’t so big. See the 17,279 cr. traded in equities today? Five years ago, on Sep 27, 2007, the equity traded amount was Rs. 20,797 cr. We are still 15% lesser today.

And on that day, Index Futures were 20,000 cr. while stock futures traded more than 54,000 cr. Our "record" volumes are 15-20% of what they were five years ago. We’ve shrunk as a market, while India’s GDP has nearly doubled in the meantime.

The talking heads on TV will tell you about how the market is "buoyant" but it really is a low volume move. You have to take statistics with a pinch of salt, especially when they are accompanied with superlatives.