India Strategy : Where Money Flows – Dec`24 By Yes Securities Ltd
Market in Transition: From Derivatives to SmallCaps
Tight Grip Dampens Index Derivatives Turnover: Following decisive measures to safeguard investor interests and curb speculative trading in Index Derivatives, total F&O turnover has been on a steep decline since November. This drop has been largely driven by a reduction in Weekly Option products, which previously dominated trading activity.
* Cash Market Turnover Faces Headwinds Post July Peak: The downturn in trading volumes is not confined to derivatives alone. The Daily Average Cash Market turnover has also taken a hit, particularly in the Large-Cap and Mid-Cap segments. This decline began after market turnover peaked in July and has persisted as investor interest shifted away from these segments.
* Large-Cap Turnover Suffers the Most as a % of Market Cap: When evaluated as a percentage of market capitalization, the turnover drop has been most significant in the Large-Cap and Mid-Cap segments. This sharp decline highlights the extent of waning investor activity in these categories.
* Small and Micro-Cap Segments Stage a Turnaround: In contrast to Large and MidCap segments, the Small and Micro-Cap segments have witnessed a noticeable recovery in turnover over the past 30 days. This signals a renewed focus on smaller stocks as participants adjust their strategies in the evolving market environment.
* We Sense a Shift in Focus: From Derivatives to Small-Cap Cash Market: A notable trend emerging from this data is likely shift of trading volumes from Index Derivatives to the Small-Cap Cash market. We sense that Investors are increasingly focusing on small-cap opportunities, given the broader price resilience in these stocks compared to their Large and Mid-Cap counterparts over the last three months.
* Sectoral Revival: Autos, Capital Goods, Realty Lead the Way: Within the SmallCap segment, sectors such as Autos, Capital Goods, Diversified, and Realty are driving the recovery in Cash Market volumes. These sectors have shown renewed momentum, attracting investor participation and benefiting from the broader market's shift toward smaller stocks.
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