NSE debt market turnover surpasses cash segment

Sujoy Manna & Prashant Kothari

Mumbai, May 15: GALLOPING debt markets in a country hooked on to equity? Well, that’s now a reality with daily turnover on the National Stock Exchange’s debt segment alone crossing Rs 2,000 crore on most of the days of the current month while its equity segment is witnessing declining turnover, which of late is at around Rs 2,000 cr, down from a high of over Rs 7,500 cr recorded on March 1, 2001.

Internationally, the size of trading volumes in debt market is usually placed at three times the size of the equity market. The ban on carryforward trading on the equity market announced by the Securities and Exchange Board of India (Sebi) is likely to give a boost to the preference for debt papers. Winding up of around Rs 1,700 cr of existing carryforward positions may see a large portion of funds to the debt market.

Though slow, this major shift in the investor’s investment perception to the debt market is a pointer of increased preference for safety not just among retail investors but even the institutional investors. Over the past one fortnight, the daily volumes are said to have been doubled.

Market sources say that shift in investment focus to debt is primarily because of the mutual fund industry which has reduced their exposure in the equity market since the beginning of the current calender year. Also, the shift of badla funds from the equity market segment to the debt market too contributed to this shift and were some of the major reasons for the surge in the turnover in the debt market.

Amidst all this, even the small investor who was till recently bullish on the equity schemes, too has preferred to shift his focus to relatively less volatile and therefore, safer debt schemes.

Confirming the shift of investor focus to the debt markets, the NSE’s director (business operations) and in charge of the debt segment Chitra Ramakrishna said: “There has been a considerable jump in the debt trading volumes during the last six months. These volumes are sustainable and the trend would continue what with the RBI wanting to strengthen the debt market’s infrastructure and broaden the debt market further”.
According to Ms Chitra, on the cards for this is the introduction of debt clearing corporation and few other steps that will help deepen the debt market.”

The current volumes on the NSE’s debt segment, according to Ms Chitra, are not necessarily because of the sliding volumes on the equity market. “Because the domestic debt market is primarily operated by institutional there is a general preference for debt paper, more so with their trading in gilts and T-Bills”. This has resulted in the debt segment’s turnover touching to current highs from just around Rs 600 crore during early 1999.

The turnover at the NSE wholesale debt market (WDM) has surpassed the turnover in the capital market segment. Transaction figures of mutual fund industry available with Sebi depicts that the mutual funds have remained net sellers in the equity market while they made net purchases in the debt market. The net sales during 2001 in the equities market is at Rs 2,904 crore while the purchases in debt market remained at Rs 2,983 crore.

Analysts added that the Sebi decision to ban badla from July 2, onwards resulted in market players unwinding their long positions. As a result the demand for funds in the badla market has fallen down sharply thereby leading to a fall in the badla rates.

The badla rates have been hovering around 8 per cent as compared to 9-11 per cent return for government securities in the debt market. So the badla financiers as an alternative source of investment have started investing money in the debt market.