Market fall coupled with rising delivery volumes a worry

Market fall coupled with rising delivery volumes a worry

Equity investors got some respite in Tuesday’s trading session, with the markets falling by only around 0.15%. Still, this marks the sixth straight session of losses for the Indian markets. The Nifty has now corrected by 6.55% in the past six trading sessions.

The fall in share prices has been accompanied by an increase in the proportion of stock marked for delivery by investors. In the past few trading sessions, the proportion of stock marked for delivery across the National Stock Exchange and the Bombay Stock Exchange has averaged around 43%. As the chart alongside shows, this has risen in the recent past. Yogesh Radke, head of quantitative research at Edelweiss Securities Ltd, explains that an increase in the proportion of delivery trades during a market fall implies it may not be short-term selling. After all, short-term positions can be taken using the derivatives market, without having to sell physical stock.

Also See Stocking Up (PDF)

Much of the selling is being done by foreign institutional investors. In the four trading sessions till this Monday, they sold shares worth 2,800 crore in the cash market, and took short positions worth more than 3,000 crore in the index futures market.

The fall in prices has also been accompanied by a rise in option premiums. The India Vix index, which measures the implied volatility based on traded prices of Nifty options, has risen from levels of 16.6 in end-December to 22.3. There has been a rise in the put-call ratio as well, essentially meaning that more put options are being bought relative to call options. All this suggests a rush by trades to buy insurance against a market fall. But note that the India Vix was as low as 16.6 in end-December—showing there was a fair bit of complacency in the markets till recently.

Graphic by Yogesh Kumar/Mint

We welcome your comments at