spot market: equity spot market volumes increase even with maximum margins in play

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Mumbai: Average daily cash market volumes in India have jumped by more than a quarter in the past four months despite maximum margin standards that came into effect from September, reflecting growing appetite for equities as an asset class in a country where real estate and gold were traditional stores of value.

“The growth in volumes from January to April is due to the large number of new accounts opened by brokerage firms for this period,” said Hemang Jani, Head of Brokerage and Distribution,

Financial services.

Volumes hit a 14-month low of ₹57,900 crore in December 2021. The increase in volumes since then has been attributed to many new client accounts being opened at brokerage firms between January and April, strong volatility in mid- and small-cap stocks, and steady selling by foreign portfolio investors, brokers said.

Agencies

In April, average daily volumes reached a six-month high of ₹73,320 crore from ₹71,016 crore in March and ₹63,255 crore in February 2022. Non-institutional volumes also rose steadily from the low of December 2021 from ₹32,742 crore to ₹41,086 crore per day in April 2022.

“Although overall volumes have increased over the past four months due to continued REIT sales and domestic institution purchases, retail sales revenue has remained stable,” said B Gopkumar, CEO of ‘Axis Securities. “New investors really bring in a good margin, and the system has been streamlined.”

About 11.6 million new demat accounts were opened between January and April this year, according to data from the two custodian agencies –

Services () and National Securities Depository (NSDL). Prakarsh Gagdani, CEO of , said retail volumes in April also increased significantly due to high volatility in small- and mid-cap stocks.

Mid-cap stocks outperformed large caps in April. While the Nifty Index was down 3.21%, the Nifty Midcap Index was down just 0.8%.

The market regulator introduced several new standards for margin and share collateral last year, but none of them had a major impact on trading volumes.

Sebi introduced the concept of Peak Margin Report, where brokers will calculate the margin based on the end of day position and intraday peak position. The new system was adopted in four phases. In the first phase, from 1 December 2020, investors were asked to keep 25% of the maximum margin available from the broker, while from 1 March 2021 the margin requirement was increased to 50 %. Similarly, from June 1, the margin requirement was 75% of the maximum margin, and from September 1, it was 100%. Since then, spot market volumes have declined only 2%, while non-institutional revenue has remained virtually flat.

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