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Charts & Analysis

Has India Lost Interest In Stocks?

The volumes on the stock exchanges don’t seem to impress, although we are at near term highs on the Nifty.

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Notice how the volumes have been around 10,000 cr. per day or less, in much of 2012 (except Jan/Feb and then in Sep/Oct).

The number of securities traded today are around 40% more than in 2007, and yet, we trade lesser overall volume. Meaning, the quantities traded per security are far lesser on average. (And indeed, the numbers seem to show concentration in a few top stocks now)

The Nifty, on the other hand hasn’t gone great guns in five years. We are at a near-break-even return over five years, a time period that seemed like "long term" in 2007.

A drop in volumes is more or less expected when the index falls to lows. But it’s rare to see new near term highs (we are at a 52 week high near 5700 on the Nifty) with dipping volumes. This indicates stagnation. While we could stagnate for months here, there is a larger move likely. I hope it will be to the upside and "climb a wall of fear", but it doesn’t look like fear when prices are high and volumes aren’t quite so.

it’s a little disheartening for the bullish story that volumes are simply not picking up. India’s GDP has doubled (in nominal terms) since 2007. The stock market volumes are lower in absolute number of crores traded (a nominal amount, so we compare apples to apples).

It is further likely that retail investors have been exiting while institutions and algorithms take a larger percentage of the total trade. (I don’t have stats, but broker numbers seem to indicate that) That means the total number of investors has dwindled as well.

Effectively, India has lost interest in stock markets, it seems. Five years ago, I co-wrote a business plan that predicted India’s average stock market turnover daily would be Rs. 50,000 cr. (at a growth of 16% from the values then). Of course, we would have recalibrated, but it gives me an idea of how different those times were.

  • IsItPossible says:

    Good observation indeed, however as you suggested “there is a larger move likely” and with the way things are today that move might be to downside, why?
    1. India’s growth rate significantly down from earlier projections, a sign of economy slowdown
    2. Lack of government action and more importantly outburst of corruption scandals pretty much everyday which is not good for investor confidence
    3. Most likely current government will loose in 2014 election which in turn means instability on what to expect
    4. To add more spice to all above things, Euro-zone crisis is far from over
    5. No one talks about Housing bubble in India but if at all euro debt crisis is NOT contained then time is ticking
    In short, we might see a lot of turmoil in markets and world economies in next 2-3 years and if one is wise enough that time will be the best time to invest in markets and real estate…. but this is just a possibility, ONLY time will tell..

  • Siva says:

    Hi,
    What is average daily turnover? How it is different from total turnover?
    Regards,
    Sivasekar

  • Sanjay says:

    The title is “Has India Lost Interest In Stocks?” But I think only trading part is analysed.
    You haven’t discussed how much, in percentages, of capital market is owned by Mutual funds and how much by FII and how much by others. It will correctly show whether investors are staying away from markets.
    It was obvious that human traders would find it difficult to make money after algorithmic trading is allowed. So it is not a news that traders are staying away from market.

  • Abhijeet says:

    I guess volumes have shifted to SGX

  • fubar says:

    You hope that the next move will be up.
    I notice that you have quietly shifted over to the bull camp there 🙂

  • Hi Deepak,
    Does BSE also show similar pattern? Will MCX equity make any impact.
    In the overall picture then, which asset is the best tool for growth? For middle class, gold and real estate is getting increasingly out of reach. Equity is a dud.
    Something is fundamentally messed up in our market….
    Regards,
    Siddharth

  • Guruprasad V says:

    Real estate seems to be lucractive than stock markets. I believe that most of the investors have switched to real estate than getting into equity markets. Those devastating effects of 2008 weren’t easily forgettable by long only crowd who got hit and sold ( could have)most of the positions around bottom of the market. I guess real estate investments are perceived to be safe and better option than equity markets for all those retail investors.

  • Krish says:

    Nice Article. I always look at my circle of friends about investing trends and I could get the same indication which indeed confirmed by your article.
    If we leave aside global and national levels of economic analysis, the savings rates are down at micro levels leaving little corpus for investments with individuals. Add to that there are many competetors emerged to this little corpus of savings. Certainly shifting is happening. I clearly see the gold winning investors heart & mind more so thanks to Dhanteras and Akshya Thrithiyas. The tax free bonds, NCDs from NBFCs and other debt instruments which are touted to return at par with equity markets have become recent favorites. I would also not forget the fact that EMIs of home loan are on continuous rise since last 2-3 years. Ofcourse we add inflation of grocery bills and hyper inflation of medical charges and education fees. The worst part is while expenses are on steep rise and the recievable incomes are subdued in last 3 years. The pay rise in many of the IT companies in last 3 years were minimal and variable pay components were hit hard.
    I really get scared with lot of new grads coming to the market trying to grab few jobs that are available and our industrial growth is not absorb the grad supply. It also frustrate me that real estate prices, rentals and salaries are not condusive for start ups. Gradually losing of this competetive advantage really scares me.