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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.

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