Sunil Saranjame has an excellent post about RPL and RNRL.

The percentage of deliverable quantity to total traded quantity is a figure worth watching as you can get a pretty good picture of what’s happening and whether there is any deliverable based buying / selling. When you see rising prices but no increase in the deliverable quantity, you may put a question mark on such a rise.

Traded vs. deliverable means the sum total of all transactions on a stock versus those that are delivered to an investor’s demat account. RNRL and RPL have been hit hard in the recent past and it could be that the delivery ratio becoming lower and lower was an indicator.

Note however that the reverse is not necessarily true. Meaning, if the delivered quantity is high on a fast rising stock, it may not necessarily mean that the stock is not being traded and is therefore good to buy. See Jai Corp for instance, where the rise over the last three months has been spectacular but all shares traded on the NSE are delivery only (since the stock is in a T2T segment in the NSE). Yet it has suffered the same reversals as RPL and RNRL have.

Secondly, you must look at two things – a drop in the deliverable quantity and a rise in price, and both need to be dramatic, otherwise the theory may not hold. So we could quantify the theory as “Stocks which rise fast, and see a drop in delivery percentages, are a pattern that signify that a lot of trading is taking place in a stock, and that the rise is not sustainable”. We could test this with say a 20% rise in a three month period with a fall of 1/5th on the delivery percentages.

I’d love to test this theory and see if this has been true for other stocks as well. Also it would be interesting to see, if this theory is correct, all stocks where delivery percentages have dipped while the stock has risen.

This is an example of a “strategy” that is back-tested; what is interesting also is that this strategy may not be tradable per se (i.e. you may not be able to short stocks effectively using only this strategy) but it could give you an indication of where you should exit your long positions (or at least, to not take further long positions).

Now, tell them about it: