Cash mkt volumes drop 20% in FY23

The average daily turnover in the cash market in FY23 (until March 22) stands at ₹53,564 crore, down almost a fifth from ₹66,799 crore in FY22. Over the same period, average daily derivatives turnover more than doubled to ₹152 trillion a day, notionally from ₹68.3 trillion. Even if the premium turnover of options is considered, there has been a jump in derivatives’ total turnover of 10% to ₹1.61 trillion in FY23, from ₹1.46 trillion in the previous fiscal year.

“A flat to lower market has caused cash volumes to correct, while derivatives volumes have risen due to intraday traders shifting to the F&O (futures and options) segment from the cash market where broker leverage has also been capped,” said Nithin Kamath, founder and CEO of Zerodha, India’s largest stockbroker.

Against a rise of 19% rise in FY22, Nifty so far this year is down 2.22% to 17,076.9 as of Thursday. A Sebi rule which took full effect in the second half of 2021 mandated that clients trading in the cash market compulsorily put up a 20% upfront margin, which was earlier funded by brokers. The move aimed to reduce systemic risk by protecting the market against broker default in case clients failed to pay up in case their trades went awry.

“There are many reasons for the cash market volumes falling sharply,” said Kamlesh V. Shah, president of the Association of National Exchanges Members of India (ANMI), a pan-India brokers’ body. “The upfront margin is one of the main reasons for intra-day trading in cash moving to the derivatives segment, where volumes have risen. To be sure, Sebi’s rule on upfront margin is a good move to protect market integrity,” Shah said. Shah also said trading in Nifty weekly options was a cheaper and more effective way of managing risk.

The futures and options segment is used by foreign portfolio investors, domestic institutional investors and some high-net-worth individuals (HNIs) to hedge their cash market portfolios. Their risk is transferred to proprietary traders and other HNIs who take contra positions based on informed decisions, said S.K. Joshi, executive director at Khambatta Securities.

Inflows into mutual funds through the SIP route have been averaging above ₹13,000 crore each month since October 2022. However, the share of individual investors in total NSE turnover fell 434 basis points (one basis point is one-hundredth of a percentage point) to 37% in April-January FY23 from a year ago.