Shifting to derivatives; Bangalore, Hyderabad see spike in cash turnover

There is a noticeable shift in cash trading in equity markets over the last three years. Traditional trading hubs in Gujarat such as Ahmedabad, Baroda and Rajkot have seen their cash turnover halve in January this year compared with March 2011.

On the other hand, southern cities such as Bangalore and Hyderabad have recorded a jump.

Trading in stock markets takes place in cash and derivative segments. The share of the cash segment in total equity market turnover has been declining of late. The cash market accounted for 14 per cent of turnover in 2010-11. In January 2014, the share dropped to 9 per cent.

Data from the Securities and Exchange Board of India show that Ahmedabad recorded cash trades worth ₹22,664 crore in March 2011. This declined to ₹10,770 crore in January 2014. Similarly Baroda witnessed a decline from ₹2,856 crore to ₹1,370 crore and Rajkot’s turnover dipped from ₹7,479 crore to ₹4,046 crore. Mumbai maintained its position as the leading centre for cash traders, with 59 per cent share in volumes over the last three years.

B Gopkumar, Executive Vice-President and Head-Broking, Kotak Securities, gives two reasons for the declining cash volumes in Gujarati cities. One, cash traders in Gujarat preferred BTST (Buy-Today-Sell-Tomorrow) trades in low-priced stocks. But choppy markets have made such trades more risky and hard to call.

“Lacklustre activity in mid- and small-cap stocks in which the cash traders typically dabble has also made traders lose interest in cash trading,” he says.

Some market experts believe that day traders, as a class, have moved from trading in the cash market to playing the derivatives; active Gujarati investors too have made this shift. Daily cash turnover on the NSE is down 26 per cent since 2010-11 while derivative volumes are up 25 per cent in the same period.

“Traders from Rajkot and Ahmedabad, who were traditionally equity (cash trades) focused, have started trading on the derivatives for shorter term bets as it gives a greater flexibility and more leverage,” confirms Nithin Kamath, Founder & CEO of Zerodha, a discount broker. He adds that “The proxy market (dabba trading) is pretty active in these centres. This definitely eats away cash market turnover which should ideally be happening on the exchanges”.

Of the cities that have recorded growth in cash volumes in this period, Bangalore and Hyderabad are notable.

Bangalore witnessed an increase from ₹1,700 crore in March 2011 to ₹5,517 crore in January 2014.

Turnover in this segment in Hyderabad went up from ₹4,407 crore to ₹11, 141 crore in the same period.

“South India, especially Bangalore has shown a positive trend in both equity cash and derivatives turnover. It has to do with much deeper internet penetration, and people taking to online trading,” says Kamath.

(This article was published on March 17, 2014)
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