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Declining trend in F&O turnover suggests caution, traders avoid leveraged bets

Market participants are afraid of taking leverage positions at current levels amid a rise in volatility, and the other possible reason is an increase in the margin requirement.

June 02, 2020 / 10:24 AM IST

Nifty50 might have rallied by more than 30 percent from its swing low of 7,500 but it is still down a little over 20 percent from the all-time high of 12,400 recorded on January 20.

Meanwhile the derivative turnover seems to be heading south, data from AceEquity showed.

Fall in turnover suggests that market participants are cautious at current levels, thanks to the outbreak of COVID-19 which has put everyone in a wait and watch mode.

Market participants are afraid of taking leverage positions at current levels amid a rise in volatility, and another possible reason is increase in the margin requirement.


Market regulator SEBI as well as exchanges have been tightening margin requirements for the F&O space for some time now to curb volatility and minimize speculative trades.

“When market participants are not certain about the direction of the market they tend to keep their positions light, this is exactly what is reflected in turnover,” Atish Matlawala, Sr Analyst, SSJ Finance & Securities told Moneycontrol.

“Other reason for the decrease in turnover is because SEBI has increased margins. Investors are skeptical about the market direction and hence they are avoiding leveraged bets in the current scenario,” he said.

Nifty turnover

Turnover is an important parameter for the market to rise. Referring to the above chart, the turnover has been steadily declining with occasional bouts of recovery, but the overall trend seems to head down.

What investors should watch for is the turnover with the change in index price as it decides the trend of the market. One can also look at the delivery percentage of stocks to determine the strength in the market, suggest experts.

“The Index had corrected around 40% from the highs in March. The rise in Nifty shows, potential buyers, as valuations are quite attractive at those levels and no one wants to be left behind,” Nitin Shahi- Executive Director at Findoc told Moneycontrol.

“The fall in the F&O segment signals less participation as many investors had incurred losses during the fall and will be more cautious to use leverage facilities and take aggressive positions at this point of juncture,” he said.

Why is turnover important? 

A steady rise in turnover generally gives an indication of the direction of the market. Talking about the occasional bouts of volatility on the upside -- sporadic increase is seen in the turnover during weekly and monthly expiry but overall volumes remain on the lower side.Turnover generally indicates the level of liquidity over a period of time. “Low turnover means few players are interested in investing or trading, while consistently high turnover indicates confidence amongst the participants,” Arun Kumar, Market Strategist at Reliance Securities told Moneycontrol.

“In the current scenario, there are few participants, hence the market is moving up with relative ease. Further, as the leveraged positions are low, the short seller has less incentive to take an active part, hence the absence of liquidity will lead to sharper moves,” he said.

Kumar further added that along with this the price structure of the key indices and leading stocks are yet to confirm a broad-based reversal, hence one should treat this as a big bear market rally.

How to analyse the trend?

Analysing the turnover is an important parameter but investors should deploy other parameters to understand the trend of the market and formulate a trading strategy.

There are many significant parameters that one has to consider while analysing the market trend. The trend emerging from individual sector indices often indicates which set of stocks are in demand and likely to go up, suggest experts.

Shahi of Findoc recommends investors to study historical P/E, technical support levels, delivery percentage of the stocks. “Government announcements (stimulus packages) are few parameters which affect the market trend and behavior of the investors,” he added.

Matlawala of SSJ Finance & Securities recommends investors to look at the open interest, long or short build-up and price action to determine the trend.

Disclaimer: The views and investment tips expressed by experts on are their own and not those of the website or its management. advises users to check with certified experts before taking any investment decisions.

Kshitij Anand is the Editor Markets at Moneycontrol.

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