NSE cash volumes sink to six-month low ahead of Sebi’s F&O curbs

Mumbai: A combination of regulatory tightening and nervousness due to the recent pullback in equities has dragged down turnover in the cash market and the number of trades on NSE to a six-month low, per market veterans.

The average daily turnover on NSE, which commands a 94% market share, declined almost 12% sequentially to ₹1.07 trillion in the month through 28 October from the previous month. This is the lowest since April’s average daily turnover of ₹1.06 trillion.

The number of trades also fell to its lowest in six months, at 734.3 million in October. In April, it stood at 681 million.

Also, the number of dematerialised securities traded in October has dropped to 67.9 billion, the lowest since June 2023’s 63.39 billion.

“There is some rationalisation in the cash market volume ahead of the Sebi tightening in the derivatives segment effective next month,” said Deepak Shenoy, founder, Capitalmind, a portfolio management service provider.

The Securities and Exchange Board of India has approved six proposals to strengthen the derivatives (futures and options, or F&O) framework and enhance investor protection. Three of those will become effective on 20 November.

Also read | Sebi’s crackdown seen cooling India’s options frenzy even as regulator’s guard rails go up

‘In for a rough quarter’

Investors hedging their cash positions with derivatives or doing arbitrage are not initiating too many fresh trades (in the underlying cash and derivatives segments), as lot sizes, extreme loss margins to cover unforeseen risks, and the number of weekly expiries are being rationalised next month.

Shenoy termed the recent pullback in the market, the longest in a year-and-half, as “par for the course”.

Ace investor Ramesh Damani agreed with Shenoy on the reason for the recent volume decline, adding that investors suffering losses in the recent pullback were also “probably” trading a lesser quantity, impacting the turnover.

“The impending Sebi norms for F&O are behind the lower volumes in cash,” Damani said.

“There is fatigue in the market and I think we are in for a rough quarter with earnings lagging expectations, valuations running ahead of fundamentals in certain pockets, and FII (foreign institutional investors) selling intensity having risen from anything we have seen in the past few years,” he said on market sentiment.

Also read | FIIs exodus sparks Nifty's longest weekly fall

Aggregate second-quarter net profit of 657 listed companies has fallen 0.6% from a year ago to ₹1.96 trillion, per data from Capitaline, amid a demand slowdown in urban areas and margin compression for banks. In the year-ago second quarter, their aggregate net profit had gained 49% to ₹1.97 trillion.

The tepid market sentiment was also reflected in Hyundai Motor India Ltd listing at a discount to its offer price earlier this month.

Andrew Holland, chief executive of Avendus Capital Public Markets Alternate Strategies, believes that large-cap stocks are nearing oversold levels while small- and mid-caps still have room to correct.

Also read | Festival season fires up gold sales every year. Not this time.