Are cash volumes in equity markets falling?

Volumes in the cash segment of National Stock Exchange have been dropping since last year. National Stock Exchange reported 156 crore trades in 2010, a fall in the count over the previous year by five per cent. In the first nine months of 2011, the exchange has reported 107 crore trades - a seven-per-cent-drop compared to the first nine months of 2010. Investors have become sceptical, say market observers. But, is ours the only market where cash volumes are declining?

The US and Chinese stock markets have also been reporting decline in volumes in the cash market.

In fact, the drop in volumes in these markets has been steeper compared with India. The European stock market and the smaller Asian markets such as Thailand, Indonesia and Korea have been ones to see volumes grow in the last two years.

(Volumes reported here are numbers reported by the respective exchanges to WFE - World Federation of Exchanges. It captures the electronic order book trades and doesn't include negotiated off-market deals).

India among high volume markets

India is placed near the top of the list of exchanges with large cash volumes. For the year 2010, its premier exchange (National Stock Exchange) recorded 156 crore trades. This is comparable with the volumes in the US and Shanghai stock markets. From numbers as reported to WFE, the US Stock Exchange recorded 205 crore trades in the electronic order book in 2010 and the Shanghai Stock Exchange recorded 166 crore trades for the same period.

The NYSE Euronext Europe stock market stands much below the three markets in the volume rank. The exchange's electronic order book has reported volume of 18 crore only for the full year 2010. India's Asian peers also do not see high volumes. The Korean Stock Exchange for instance reported a total trade of 92 crore for 2010.

Fall is comparatively lower

Looking back into trade volumes since 2005, we observe that drop in cash volumes at NSE has followed several years of robust growth.

Between 2006 and 2008, cash market volumes (as measured by number of trades) grew at an annualised rate of 35 per cent. And in 2009 even when the US market was seeing declining trades, NSE had reported growth.

In the last two years, trades in the cash segment have been falling or were more muted in most markets and India was not an exception. In 2010 the US stock exchange saw a 24-per-cent drop in number of trades in the cash market and so far this year, the volume has fallen 4 per cent. NSE, however, has reported a far lower drop.

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