Trading volumes for the equities cash segment remained soft, even as the benchmark indices rallied nearly 9 per cent in July.
Meanwhile, volumes in the futures and options (F&O) market dipped marginally, but continued to hover at record levels.
In July, the average daily turnover (ADTV) for the cash segment was Rs 46,602 crore, up 4.5 per cent month-on-month (MoM), but 26 per cent lower than the preceding 12-month average.
In June, ADTV at Rs 44,608 crore had dropped to its lowest level since March 2020.
The sharp spike in volatility has impacted retail investor sentiment, prompting it to restrict its trading activity.
Market experts said once volatility rises, the opportunities to trade and move money from one pocket to the other shrink.
Retail sentiment will not become buoyant until foreign portfolio investors (FPIs) become buyers of Indian equities for some time.
FPIs bought shares worth Rs 4,989 crore in July after being net-sellers since October.
“FPI flow turnaround happened in the latter part of July. Retail momentum will take some time.
Bottom-fishing is done by institutions and high networth individuals. Retail investors are bullish by nature.
“Retail participation will not improve unless markets are on an upward trajectory.
“They will want market volatility to come down first. This is in line with the usual market trends.
“It is the liquidity outflow that causes volatility in the market,” says E Prasanth Prabhakaran, chief executive officer and managing director, YES Securities.
Meanwhile, F&O volumes seem little impacted by market volatility.
In July, ADTV for the equity derivatives segment stood at Rs 10.94 trillion — down 0.8 per cent MoM.
In June, ADTV for the F&O segment had hit a record of Rs 11 trillion (notional turnover for the options segment).
Market players said regulatory changes around margin requirements have led to a shift in volumes from the cash market to options.
In June, the benchmark Sensex and Nifty had dropped to their lowest levels in 13 months.
However, stocks have seen sharp recovery since then.
The benchmark indices have rallied more than 13 per cent from their June lows.
A sharp drop in stock prices in June impacted trading volumes and weighed on dematerialised (demat) account openings. In June, new demat accounts opened at 1.79 million — the lowest since February 2021.
Market experts said if a sharp rebound seen in the market last month sustains, trading activity could once again pick up.
However, they are sceptical about a quick turnaround.
“The next two/three quarters will be volatile. We might see the Reserve Bank of India hike rates, and there will be some impact on markets,” says Prabhakaran.
Chokkalingam G, founder, Equinomics Research & Advisory, says there are enough headwinds irking investors like the Russia-Ukraine stand-off, balance-sheet reduction of central banks, and commodity prices.
“Most retail investors don’t feel the worst is over,” he observes.