The return of Foreign Institutional Investors (FIIs) to the Indian equity markets since the start of 2012 has lifted cash volumes. The average daily turnover of the cash segment in January was at R10,767 crore?the highest since September 2011, when the average turnover stood at R11,242 per day.
The turnover in December, 2011 was R8,995 crore? a 22- month low. Turnover has risen by 20% in January on month on month basis.
On the other hand, a fall in market volatility, which on average fell to a six-month low, affected the activity in the F & O segment. The segment’s daily turnover for January declined to its lowest since August 2010. FIIs have shopped for stocks worth more than $2 billion in January.
According to traders, sustained buying activity by FIIs has been the key reason for the rebound in cash or delivery volumes. However, they also point out that some domestic institutional and HNI traders, who have been wanting to exit some mid-cap counters are taking advantage of the rally in the market. That has contributed to cash market activity.
?A number of domestic traders were buying midcap stocks on every dip when the Nifty was trading in 5,200-5,400 range. However, the market?s crash to 4,500 meant they had to bide their time,? said Siddarth Bhamre, head of equity derivatives with Angel Broking.
Following a 13% rebound in the market and 17% gains in the CNX mid-cap index from their December lows, some of these stocks retraced 80 to 100% of their declines. ?Strong buying activity by FIIs has led to domestic participants liquidating their positions on such mid-cap stocks as Nifty hovers around a strong resistance of 5,250. These exits have added to the volumes on cash segment ,? he added.
FIIs have bought Indian equities worth $2.2 billion during January, their highest monthly purchase in more than a year. In 2011, FIIs turned net buyers during July, February and March. However, their purchases during those months were near $1.5 billion. Their net purchases for January is thus the highest since November 2010, when they acquired $4.1 billion worth of stocks.
The derivatives segment, however, has experienced a similar decline in the trading activity as the ADT of the F & O segment has dropped 22% to R 1.02 lakh crore. Traders attribute this decline to sliding market volatility and declining arbitrage opportunities. The VIX, a gauge of market volatility averaged at 23.8 during January, compared to 27.6 in December. According to Savio Shetty, derivatives trader at Prabhudas Lilladher, volumes in the derivatives segment also depend on the degree of arbitrage carried out between cash and futures market. ? In last one and a half months, there has been a fall in both, the number of stocks which offer arbitrage opportunities as well as the arbitrage premium,? added Shetty.