Stock trading volumes dropped for the first time in four months in October even as the secondary market continued to be buoyant, a report by Business Standard stated. The average daily trading volume (ADTV) for the cash segment fell to ₹54,532 crore (NSE and BSE combined), a fall of nearly 20 percent month-on-month (MoM), it noted.
The ADTV for the futures and options (F&O) segment (both NSE and BSE combined) stood at ₹147.4 lakh crore (notional turnover), declining 4 percent MoM, informed BS.
It is important to note that typically, trading volumes tend to jump whenever the markets rally. However, this was not the case in October. Experts told BS that the latest rally has taken many traders by surprise, with most of them waiting on the sidelines.
In the past 13 sessions, the Nifty made gains on 11 occasions. Experts say many were hoping that the markets would correct amid global headwinds (currency weakness, rising bond yields and fears of recession). However, optimism about the US Federal Reserve going slow on rate hikes has fuelled a rally in global equities over the past two weeks, they added.
Market players also told BS that the festival season could be one of the reasons behind the suppressed trading activity.
"Usually, market activity is a bit subdued in October as there are market holidays, and traders don't make aggressive bets during the festival season. Despite the markets rising, there is no positive news flow nationally and internationally. We are still grappling with high inflation and other macro headwinds. In such a situation, it is natural for traders to be circumspect. Moreover, the rally in markets last month was confined to select stocks in the large-cap space. But if the momentum continues, we could see the rally becoming more broad-based," said Prakash Gagdani, chief executive officer, 5Paisa Capital.
Markets rising on the back of decreased volumes is a sign that traders are not convinced about the sustainability of gains, some other experts pointed out.
At present, most analysts are cautious on domestic equities due to expensive valuations, noted BS. The Sensex is trading at a price-to-earnings multiple of 23.4 of its one-year forward earnings as against the 10-year average of 17.5x, it said.