Cash Vol­umes Surge Af­ter Poll Re­sults

The Economic Times - - Markets + Finance -

The in­creas­ing ex­po­sure of for­eign in­sti­tu­tional in­vestors, or FIIs, in un­der­owned stocks and the par­tic­i­pa­tion of re­tail in­vestors have pumped up vol­umes in the cash mar­kets on the Na­tional Stock Ex­change and the BSE since the be­gin­ning of the year. Af­ter the poll re­sults, cash vol­umes on both the ex­changes have risen nearly two fold in com­par­i­son with the aver­age vol­ume since the be­gin­ning of the year. Cash vol­umes in the NSE recorded a turnover of ` 36,319 crore on May 16 and ` 30,552 crore on May 19 against an aver­age vol­ume of ` 12,588 crore in the last four-and-a-half months. An­a­lysts say cash mar­ket vol­umes picked up due to port­fo­lio ro­ta­tion of FIIs to­wards un­der­owned stocks from over-owned stocks and an in­crease in re­tail par­tic­i­pa­tion. “Cash vol­umes in the mar­ket have risen be­cause of a large churn in the mar­ket by FIIs af­ter the poll re­sults in In­dia. We are see­ing FIIs en­ter­ing un­der-owned stocks from sec­tors such as en­ergy, bank­ing and in­dus­tri­als. Be­fore the elec­tion re­sults, they were over­weight on IT and pharma and their re­al­lo­ca­tion of funds has lifted cash mar­ket vol­ume man­i­fold,” said Saa­gar Ba­jaj, as­so­ciate vice-pres­i­dent, Nir­mal Bang In­sti­tu­tional Eq­ui­ties.

For in­stance, if an FII with large ex­po­sure to In­fosys, sells a part of it and in­vests in cycli­cal stocks such as L&T, then there is doubling of vol­umes in the mar­ket, as the in­vestor in the first leg of the trans­ac­tion would be sell­ing his hold­ing in In­fosys and sub­se­quently buy­ing a stake in L&T. This is known as tac­ti­cal port­fo­lio change and an in­crease in the de­liv­ery per­cent­age cor­rob­o­rates this.

Some for­eign funds had in­creased In­dia ex­po­sure through the Nifty bas­ket and, grad­u­ally, they will read­just the port­fo­lio based on what strat­egy they adopt for se­lec­tion of In­dian eq­ui­ties, said Ba­jaj.

FIIs have been over­weight on tech­nol­ogy, pri­vate sec­tor banks and phar­ma­ceu­ti­cals by 2.6%, 4.3% and 0.1%, re­spec­tively, when com­pared with the weight of the sec­tors in the BSE 200 in­dex, ac­cord­ing to the ex­change fil­ing of March. For­eign funds are un­der­weight on en­ergy, PSU banks and cap­i­tal goods by 2.4%, 1.8% and 2.3%, re­spec­tively.

In­creas­ing par­tic­i­pa­tion of re­tail in­vestors has also boosted cash vol­umes. G Chokal i n g a m, f o u n d e r a n d MD, Equinomics Re­search and Ad­vi­sory, said, “The ap­a­thy of re­tail in­vestors has been no­to­ri­ous. Most re­tail in­vestors en­ter eq­ui­ties mar­ket based on price points rather than fun­da­men­tals. Usu­ally, they make fresh ex­po­sure to eq­ui­ties when stocks have ap­pre­ci­ated quite sig­nif­i­cantly.”

Ashutosh R Shyam ET In­tel­li­gence Group

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