The trading slowdown: Cash & F&O turnover hit multi-month lows

The combined average daily turnover in the F&O segment across both exchanges has also dropped by 16 percent month-on-month, reaching a seven-month low of Rs 334.69 lakh crore.

The average daily turnover in the cash market in November has dropped to its lowest level in a year while futures and options touched a seven-month low level, amid the ongoing correction in the Indian equity markets. Experts are of the view that the decline underscores growing investor pessimism and the cautious sentiment on the back of global economic uncertainties and heightened market volatility.

The combined average daily turnover for BSE and NSE in the cash market has decreased to a 12-month low of Rs 1.06 lakh crore in November so far, marking a 7.3 percent decline compared to the previous month. Notably, this marks the fifth consecutive month of declining turnover. Interestingly, November's average daily turnover for BSE stood at Rs 6,192 crore, down 15.6 percent from a month ago while NSE's average turnover stood at Rs 99,734 crore, down 6.8 percent.

The combined average daily turnover in the F&O segment across both exchanges has also dropped by 16 percent month-on-month, reaching a seven-month low of Rs 334.69 lakh crore. Incidentally, the decline was most pronounced in index futures, which experienced their steepest drop since July. Similarly, stock futures and options recorded their largest one-year decline, while index options saw their sharpest fall since July.

Mandar Bhojane, equity research analyst at Choice Broking, stated that the decline in turnover across both cash and F&O markets can be attributed to a mix of global and domestic factors. Geopolitical uncertainties, persistently high inflation, and fears of potential monetary tightening by global central banks have led investors to adopt a more cautious stance, he said.

Additionally, experts believe that elevated valuations in domestic markets, coupled with a natural consolidation phase following a robust rally earlier this year, have dampened trading activity. Stricter margin requirements introduced by SEBI have further increased the cost of F&O trading, reducing investor participation.
Apart from this, continued FII selling in India amid weak September quarter earnings and Reserve Bank of India unlikely to cut rates soon also dampened sentiments among investors.

Vikas Jain, head of research at Reliance Securities, highlighted that recent changes in derivatives, including amendments to weekly expiry announcements and discontinuation of certain instruments, have contributed to reduced activity among large arbitrage options traders and scalpers.

Experts further noted that volumes in index options have declined due to higher Securities Transaction Tax (STT), which has increased trading costs for proprietary traders. The sharp volatility observed during the final trading hours on expiry days has also made it challenging for traders to hedge their positions effectively. Experts added that the new lot size changes in indices have raised margin requirements for retail investors, discouraging them from trading in index futures for scalping or portfolio hedging purposes.

Shrey Jain, founder & CEO, SAS Online, a deep discount broking firm, said going forward the volumes may go down by 20-30% due to implementation of SEBI's six-point regulatory framework.