Investors have hedged stocks at lower levels, which has not only boosted the indices of their recent lows, but has also led to a steady increase in trading volumes on the supply side. Deliveries reached their highest level in eleven months in March, as investors became more aggressive and confident in their positions after equities fell to nine percent in the previous month and a half.
Benchmarks performed at their worst in more than a decade, because the coronavirus (Covid-19), which caused a blockade in all major countries of the world, raised fears of recession. The S&P BSE Sensex was inundated to 23% in March, the largest monthly decline since October 2008.
However, the average total monthly supply on the BSE and National Stock Exchange (NAS) rose to 37.2% in March, the highest level since April 2019 when it stood at 39.3%. According to the stock exchange’s website, the NEB recorded an average record daily turnover of Rs 47,917 during the month.
According to the monthly data collected by the Bureau of Business Standards Research, the ratification of deliveries – the percentage of shares actually traded out of the total number of shares traded – was approximately 34.1 in January 2020 and 35.8% in February 2020.
In December 2019, when the market peaked, less than a third (31.3%) of the shares traded were deliveries. In March there is usually a large number of delivery transactions as a result of the end of the financial year. In March 2017, the ratio reached a record level of 52.6% of shares traded that were converted into deliveries. In March 2018 it was 37.9% and in March 2019 it was 38.5%.
On the other hand, the volume of individual deliveries by the NBB reached its highest level in eight months, when 20.51% of the shares traded were converted into deliveries according to stock exchange data.
The sectors – bank stocks, cement, chemicals, machinery, agrochemicals, cars (mainly tractors and commercial vehicles), consumer goods (FMCG), sugar, aviation, household appliances and paints – saw an increase in supply-side trade.
For each transaction to be bought, the corresponding transaction to be sold must also be bought. A number of investors left their positions in March, thinking that markets would fall as a result of the Covida 19 pandemic, while some became aggressive and bought. Large investors can also take a position on margin calls. But it’s time to be selective. Among sectors, investors should stay away from banks and cars for the time being, said Nandish Shah, Derivatives Analyst at HDFC Securities.
After a significant recovery from the recent lows, analysts now expect the indices to cool and consolidate somewhat. In this context, they consider that the markets are likely to remain volatile as they look for clues to determine future prices.
Structurally, the most important point to note is that the last three weeks of consolidation are longer. Any cooling from here, due to increased global volatility, has been set at Nifty around 8500. Therefore, short-term breathing to this level should not be interpreted negatively, but should be capitalized as an additional purchase opportunity, said Dharmesh Shah, Assistant Vice President of Technical Research at ICICI Securities.
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