A web of factors such as the ongoing global volatility, deep and across-the-board correction, weakness in Rupee and sustained foreign selling have all taken the wind out of the sails of trading activity, with the average daily turnover (ADTV) in both cash and derivatives segment hitting multi-month lows in February.
Data from BSE and NSE shows that the combined average daily turnover in the cash market fell below Rs 1 lakh crore in February for the first time since November 2023. This also marks the eighth consecutive month of declining turnover on a month-on-month basis.
The average turnover in futures and options has extended its decline to hit a two-year low. In February, the F&O average turnover fell to Rs 185.39 lakh crore, its lowest level since December 2022. This is also the fifth consecutive month of decline in turnover on a month-on-month basis.
Indian equity markets have seen a rise volatility in February so far, along with a near 3 percent fall in benchmark indices Sensex and Nifty. Broader BSE indices covering mid and smallcaps have lost over 6 percent and 8 percent, respectively.
Geopolitical conflicts and economic uncertainties have made investors risk-averse, leading to a fall in equity trading activity, experts told Moneycontrol. Additionally, higher interest rates may prompt a shift toward safer fixed-income assets, further affecting market participation.
"The decline underscores the rising investor pessimism and cautious sentiment amid global economic uncertainties (tariff wars), heightened market volatility - particularly in the small and midcap segments - and concerns over potential monetary tightening by central banks worldwide", Aditya Kondawar, Partner & Vice President, Complete Circle Capital said.
The sharp fall in F&O segment is due to rising market volatility - which limits trading opportunities - as well as a growing risk aversion among traders, said experts. SEBI’s recent regulatory changes - fewer weekly expiries, higher investment requirement for F&O trading, and higher taxation - have made derivatives less attractive, leading to a decline in speculative activity.
Akshat Garg, AVP of Choice Wealth pointed out that unless there is a significant improvement in market conditions and investor sentiment, the downward trend in both cash and F&O market volumes may persist in the near term.
Ajay Garg, CEO, SMC Global Securities said the upfront collection of premiums by options buyers from February onwards is keeping traders on the edge. In the longer run, traders may need to adjust their strategies and once excessive volatility eases in the broader market, the turnover in F&O could also revive, Ajay Garg added.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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