Brokers said the pace of growth in trading activity in shares has not been able to keep pace with the surge in the country’s stock market capitalisation in recent years.
The average daily cash market turnover in 2022 was ₹61,942 crore compared to ₹75,198 crore a day in 2021. The market capitalisation has increased from an average of ₹148 trillion in 2020 to ₹263 trillion in 2022. The average daily turnover in 2020 was ₹57,614 crore a day.
“Over the last two-three years, market regulator Sebi has been bringing in many additional rules and regulations to safeguard retail customers, which has impacted the overall activity in the cash market,” said Nithin Kamath, founder of Zerodha. “Traders who wanted leverage for intraday have moved to options trading as leverage in the cash market has been capped.”
The average daily turnover in the equity futures and options segment has increased from ₹1.46 lakh crore in 2011 to ₹107 lakh crore in 2022.
“As more and more people have started switching to derivatives products, the buy and hold strategy has not been preferred by investors as long positions in many stocks could not perform well during the past six months,” said Sandeep Bhardwaj, CEO-retail,
. “Since the range-bound market historically favours option sellers, we have seen a sharp rise in the implementation of short gamma spread strategies that benefit from the decay in option premium, resulting in a spike in options turnover.”
The number of demat accounts has more than doubled from 3.59 crore in 2018 to 8.97 crore as on March 31. Between 2011 and 2016, the cash market turnover to market capitalisation was about 0.22%. The ratio never fell below 0.30% between 2000 and 2010.
Sebi has made it compulsory for brokers to collect margins upfront before allowing traders to put in their trades. Until 2020, the margins were collected based on the end of the day positions. To clamp down on excess intra-day leverage to traders, Sebi also introduced the concept of peak margin reporting, which involves routine checks by stock exchanges’ clearing corporations to ensure that clients are meeting their intraday trading margin requirements. The move is aimed at ensuring that traders do not take more positions than they can afford. Till 2020, some brokers offered as much as 50-100 times leverage for intraday trading.
In 2019, the market regulator tightened the rules for the usage of client funds by brokerages. Brokers have been asked to transfer the securities to client accounts within one day of receiving payment.
