Mumbai: The average delivery based volume (NSE and BSE combined) as a percentage of total volume has fallen to a two year low of 38.61% in January.
The consensus is that the recent rally is a temporary phenomenon and stocks are being lifted by a wave of liquidity. Things haven’t really changed fundamentally. The latest economic growth projections point to a 6.9% rate for FY12 compared to 9% earlier. That will continue to pinch corporate earnings; indeed consensus earnings estimates for the current fiscal declined by 8% since the beginning of the year, as Mint recently reported.
Another reason why this rally may not sustain is because delivery based volumes are gradually falling. The average delivery based volume (NSE and BSE combined) as a percentage of total volume fell to a two-year low of 38.61% in January. The average delivery based volume as a percentage of total volume for February so far is 38.27%.
“A trending market with decent volatility gives opportunity to intra-day traders, hence percentage of non-delivery trades goes up,” said Ambareesh Baliga, COO of Way2Wealth.
The average daily turnover spiked 30% in January while the Sensex gained 11.25% during the same month, its biggest rise since 1994. In November 2010, when the markets touched all time high, the average delivery percentage fell to six-month low of 39.75%, along with a rise in average daily turnover following which the rally lost steam.
Because of the uncertainty in Europe, a sharp move up in crude prices following the Iranian supply threat, elections in India and the upcoming budget, investors are not confident of holding on to stocks for more than one day, said analysts.
“Leveraged positions have also increased in the market which is why we are seeing 7-8% up move in individual stocks intra-day,” said Ashish Chaturmohta, vice president - derivatives and technical analysis, IIFL Private Wealth.
Leverage or margin trading happens when investors do not pay the full amount to buy a position in a stock in order to earn higher returns. The sectors which were beaten down, such as realty and infrastructure have rallied the most since the beginning of the year, while there is no improvement in fundamentals.
Market analysts said the money which came into India is hot money or short term money via exchange traded funds and chances of out flow are high. Low stock delivery is not a healthy sign and is another reason why the current liquidity driven rally may not sustain. Baliga added, “The fact that rally has sustained till now is itself surprising, it would be good time to book profits.”