Top five stock brokers in the country have increased their share from 10 per cent in fiscal 2003 to 12 per cent in fiscal 2004 on the National Stock Exchange. Of the total turnover on the NSE, the five cities contributed whopping 79 per cent in fiscal 2004, increasing their share from 76 per cent in fiscal 2003. The share of Mumbai alone shot up from 40 per cent to 44 per cent during the period.
Dominated by the big institutional players, foreign institutional investors (FIIs) and mutual funds (MFs) have also witnessed a sharp jump. In March 2004, they accounted for over 25 per cent of the total trading volumes on the premier bourses, NSE and The Stock Exchange, Mumbai (BSE) as against 13 per cent in March 2003.
Another major cause of concern is the concentration of trading volumes in a few major stocks. Out of the 7,264 stocks, which are listed on the BSE as on March 2004, only about 36 per cent were actually traded on the bourse during the month. Top 5 stocks contribute 31 per cent of the total turnover on the NSE, while a whopping 91 per cent of the turnover came from the top 100 stocks in fiscal 2004. This is notwithstanding the sharp rally in the mid and small market capitalisation stocks during the fiscal, which saw investors and speculators shifting to these second-line and third-line stocks.
While the concentration of trading volumes has decreased from previous years level, the concentration in volumes in top few stocks has increased during the last quarter of the fiscal 2004.
As against 27 per cent in December 2003, the contribution of top 5 stocks has shot up to 34 per cent in March 2004 on the NSE. Also the share of top 25 stocks has zoomed from 57 per cent to 75 per cent during the period.
This concentration in few stocks is not only limited to the cash markets. Despite the four-fold growth in volumes in the derivatives, this segment of the equity market has also been facing the problem of ample liquidity in few products, while others remain largely illiquid. And this concentration has also increased over the past one year.
For instance, the share of futures (both index and stock) in the total turnover on the NSE has surged to over 87 per cent in March 2004 as against 75 per cent in March 2003. As a result, most of the options contracts, specially stock options, still remain illiquid.