As a result of the high volatility, retail investors and financial institutions have begun keeping a safe distance from the market, something clearly evident from the fall in the delivery-based volumes on the stock exchanges.
According to data available with the Bombay Stock Exchange (BSE), the share of non delivery-based volume has risen massively in the recent past. Day trading accounted for a little over 51% of the total volume (number of shares traded) in January 2006. This had gone up to as high as 61.08% in June. In the current month to date, it is still pegged at 54.55%.
Experts say this trend can mainly be attributed to those investors who lost money after the bull run, and now, in a desperate attempt to recover the losses, have turned to day trading.
Such investors indulge in speculative trading, many a times based on margin money as they dont have much money left to invest, says Manish Kanchan, CEO, Ambit Capital Pvt Ltd.
The share of volumes based on non-delivery was always in a range of 51% to 56% in all the months of the current calendar year, except June. In fact, the share of speculative trading has never been so high in the recent past, too. In the entire calendar year (CY05), the highest proportion of day trading was witnessed in August when it was pegged at 53.86%.
A similar trend can also be witnessed on the National Stock Exchange (NSE). The turnover has been falling and the quantum of day trading is rising. On January 31, day trading accounted for nearly 67% of the total turnover. This increased to more than 76% on June 30.
The fact that delivery-based volumes have gone down signifies that day trading has increased. The market is lacking in depth and investors are skeptical of the long term prospects, says Ambareesh Baliga, VP, Karvy Stock Broking.
Incidentally, a correlation can also be found between the quantum of day trading and the turnover of the exchanges. The turnover (value of shares traded) on the BSE has seen a steady decline in the last few months, due to a massive fall in stock prices and also partly due to a lack of investor interest.
On the other hand, the amount of day trading has been going up. In June, the average monthly turnover was the lowest at Rs 3,131.01 crore, while day trading accounted for over 60% of the total turnover.