Cash Volumes Surge After Poll Results
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