BSE, NSE: Trends in turnover

Anup Menon

CALENDAR year 2000 has been an eventful one for the stock markets.

The BSE Sensex hit its all-time high last February. Similarly, since the inception of the NSE in 1994, the combined turnover of the BSE and the NSE touched the highest point in calendar year 2000. The consequences and causes of the increase in turnover has a significant impact from the point of view of investors and regulators.

On a year-on-year basis, the total turnover rose 63 per cent to Rs 22,37100 crore. On a monthly basis, the highest turnover both at the NSE and the BSE was recorded in February, at the height of the bull market. However, did volumes taper off subsequently? Not really.

For instance, in the first two months of calendar year 2000, when the Sensex went up by around 7 per cent and was in the last phase of a bull run since November 1999, the total turnover stood at around Rs 4,40,305 crore.

Compare this with the total turnover for March, April and May 2000 which stood at around Rs 4,03,361 crore. During this time-frame, the Sensex dropped by around 23 per cent. This seems to indicate that trading activity was fairly high, irrespective of the direction of the broad market.

This could be, probably, due to the high level of trading interest in the markets. The high degree of volatility during the year can be attributed, largely, to increased day trading. Hence, be it a bull or a bear market, short-term traders can make money.

Volumes were concentrated in specific stocks -- Himachal Futuristic, Global Telesystems, Satyam Computers, Zee Telefilms, Satyam Computers and other New Economy stocks -- a change compared to earlier years. Most of these stocks are favourites for day traders and can boast of a high degree of price volatility. Mutual funds and FIIs have also been active during the year which could explain the increased turnover to some extent.

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Based on the numbers for 2000, the NSE has a market share of around 56 per cent and the BSE 44 per cent. Since the introduction of the BOLT system, both the exchanges have been trading on level-ground after a brief period of equal market share. Further interest in the ALBM system has shown an increasing trend over the last few months. Hence, since the carry forward system at the NSE is also finding interest, further improvement in the turnover levels at the NSE can be expected.

The increased turnover may also be a warning signal for regulators. As indicated earlier, the high level of turnover is spawned to a large extent by trading concentrated in specific counters.

Normally, higher turnover should mean higher liquidity. However, with turnover being driven by a few stocks and a few sectors, an improvement in the overall level of liquidity in the market cannot be assumed. This can have serious consequences for small investors.