Chart: Stock Market Volumes at a Low

Since 2007, stock markets have seen highs and lows. India’s GDP has more than doubled. The money supply in the system – total deposits in banks for instance, has nearly tripled. Yet, the growth in volumes in the stock market has, for the most part, not happened.

Note that we’ve gone from about 1,100 securities traded daily to about 1,600, and even with a near 50% increase in numbers, and a jump of Nifty from about 5,000 in 2007 to nearly 6,000 today, volumes remain just around 10,000 cr. per day.

In addition, I believe the top few stocks take a considerable percentage of turnover each day. Essentially, volume of trading has died, and it’s pretty much the low of the trading cycle if you weight money by inflation.

For volumes to return, you need a certain level of euphoria. I think the US is providing the path ahead with a recovery looking to happen, and Europe, as long as it stays together, will be a second level force. Japan’s printing – and more money is initially good for stocks. The only bone in the kabab is China, which seems to be continuously slowing down.

Internally, no one trusts stocks, and it’s getting worse with stocks like Core Education falling 80% in two days, or even public sector stocks like NHPC down nearly 30% in a less than a week. With low volumes even legitimate cases for a fall – like pledged share owners selling shares – will cause a steep drop in price. While the drop in STT from the next financial year will help traders and speculators return, it is quite unlikely without a very positive environment. And that is doubtful until elections next year; but watch for a new high to break all the rules.