Mumbai: At a time when investors on equity markets are busy reaping profits with NSE’s benchmark index Nifty soaring to a record 4,400 level, traders on the debt market have a different story to tell.
An analysis of equity and debt market for the past three fiscals till date shows that the average daily turnover of the capital market segment witnessed an uptrend while the wholesale debt market (WDM) segment recorded a consistent decline.
The average daily turnover of the capital market segment on the National Stock Exchange has grown to a whopping Rs9,885 crore in May from Rs4,506 crore in financial year 2004-05, while the average daily value of debt segment plunged from Rs3,028.31 crore to Rs825.49 crore.
The equity market has witnessed consistent growth from start of FY 2004 till date, during which the benchmark Nifty gained nearly three-fold translating into a similar growth in the investors’ wealth. The index has soared to 4,400-mark currently from 1,500 level in FY 2004.
Theoretically, the relative significance of the equity and debt markets vary as per the stages of economic development.
Some researchers believe debt and equity markets can be classified as substitutes as the economy develops.
“As and when an economy becomes more developed, monitoring becomes expensive relative to capital costs. In such a case, techniques that involve low monitoring costs, such as equities, are preferred. Hence, as an economy grows, activities in the equity market increases as compared to debt market trading,” analysts said.
Business growth in the capital market segment jumped by leaps and bounds in the period under review. The average daily turnover grew to Rs6,253 crore in 2005-06 from Rs4,506 crore in the previous fiscal, which gradually touched a level of Rs7,812 crore in FY 2006-07.
In May, the average daily turnover of equity segment reached as high as Rs9,885 crore, as per information available from NSE.
However, the debt market witnessed a complete opposite trend. The average daily value in the WDM segment declined from Rs3,028.31 crore in 2004-05 to Rs1,754.70 the next.
In FY 2006-07, it dipped to Rs897.98 crore and as of May, the average daily value was at Rs832.55 crore.
Advocating for a more active debt market, analysts said it would help in reducing a company’s dependence on other financial institutions such as banks for loans.
Equity market at dizzying levels need a fall-back option, which the debt market provides very efficiently. The debt market gives depth to the overall marketing scenario, especially when the stocks become highly volatile, they added.