NSE Capital Market (Cash) Segment - How low will turnover go?
Following up on my previous post: NSE CM Turnover - August sucks!, here is a look at liquidity in the NSE CM segment, since 1995 (click for larger image):
Some observations:
- Even after the March 2000 peak in the Nifty, CM turnover continued to go up; then it crashed 80% within a month during the KP scam
- Since then, there was a steady rise to ~ Rs 12,000 crore till mid-2007; then things got really wild and daily turnover shot up to over Rs 25,000 crore in October 2007
- Since then, turnover steadily declined along with the Nifty, and then completely tanked this month
If there’s a repeat of the 2001-2002 bear, we’ll see daily turnover remain in the Rs 7,000 - 10,000 crore range. Of course, the F&O segment has grown much faster since 2003, and as the NSE adds more stocks to the F&O list, perhaps we’ll see increasing liquidity. But for now, I’m worried! With a range-bound market (and perhaps even a further 15-20% drop in the Nifty per my expectations), it’s tough to be optimistic about liquidity.
And imagine how much pain the brokerages (and other financial intermediaries) are going to be in if this continues. Guess we’ll soon see consolidation in the industry.
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