Stock trading volume drops in October despite bull run

Despite registering one of the biggest monthly gains in October, domestic stock market trading volumes plunged for the first time in the last three months, with average daily trading volume (ADTV) for the cash segment falling to ₹54,532 crore (NSE and BSE combined), down nearly 20% on month-on-month (MoM) basis. The ADTV for the futures and options (F&O) segment (both NSE and BSE) declined 4% MoM to ₹147.4 lakh crore. In comparison, the benchmark indices – Sensex and Nifty – surged nearly 4,000 points and 1,150 points, respectively, in October 2022, registering a growth of more than 7%.

The NSE’s cash ADTV declined 18.6% MoM to ₹50,100 crore, while that of BSE dipped 17.6% MoM to ₹4,400 crore, domestic brokerage firm ICICI Securities said in a report. However, currency ADTV for NSE grew 4% on a monthly basis, while that for BSE declined 19% MoM.

Notably, there were fewer trading days in October due to festive holidays. The BSE and the NSE were closed on October 5, October 24, and October 26, owing to Dussehra, Diwali, and Diwali Balipratipada, respectively.

However, the ICICI Securities report says that the drop in volumes was not largely related to any festive factor, but due to the "October effect". The October effect refers to the psychological anticipation that financial declines and stock market crashes are more likely to occur during this month than any other month. Between FY13 and FY22, NSE’s October monthly cash ADTV has declined in 7 out of 11 years sequentially.

The report highlighted that the NSE options ADTV declined 3.7% MoM to ₹144 lakh crore. The overall decline in options notional volumes was 21% MoM (due to lower trading days) while premium turnover declined by 30% MoM.

“Higher drop in premium turnover can be attributed to the overall dip in volatility index which declined from the levels of 20 as on 30th Sep’22 to 15.8 ason 31st Oct’22,” it said.

As per the report, MCX futures ADTV declined 6% MoM to ₹23,600 crore in Oct’22, led by a sharp decline in the energy segment. Crude ADTV fell 26% MoM driven by a drop in the number of contracts traded, while natural gas volumes declined 14% MoM due to a fall in natural gas prices. Gold futures ADTV also dipped 9% MoM due to a drop in the number of contracts traded.

On the options front, MCX reported an ADTV of ₹31,500 crore, down 11% MoM. However, if we exclude the three half working days in Oct’22, ADTV would be strong at ₹34,600 and lower by only around 3% MoM, the report said. Crude and natural gas contracts contributed 76% and 20% of overall options volumes, respectively, during the month under review.

Meanwhile, National Securities Depository Limited (NSDL), one of the largest securities depositories in the world, added 0.40 million demat accounts in September 2022, while Central Depository Services Limited (CDSL) added 1.7 million demat accounts during the month. CDSL’s market share stood at 71% in terms of total demat accounts and 79.3% in the incremental demat accounts in FY23-TD.