Not everybody loves a good stock market story

Nearly half a dozen English channels and a couple more in Hindi cover India’s stock markets. Another half a dozen English newspaper catch its every cough and sneeze. The treasury benches exult if the index rises; the opposition benches exult if it falls.

Signals on the state of the overall economy are read from tea leaves on Dalal Street. On budget day, the dalals in grey suits give marks to the honourable finance minister. Fear and greed are supposed to drive it. Its scams stars (Harshad Mehta and Ketan Parekh) are legends.

Gordon Gekko is god.

But what really is the state of the Indian capital markets, after 20 years of economic liberalisation and market development?

“Narrow, shallow, illiquid and concentrated in the hands of a few individuals located in a few centres…. A casino frequented by a small closed club,” is the clear-eyed verdict of Sucheta Dalal’s personal finance magazine, Money Life.

In unstarred question number 1669, BJP member Sukhdev Singh Dhindsa asked the finance ministry for details. On August 10, Minister of state for finance, Namo Narain Meena, provided the answers. They are little short of eye-popping in a nation of 18 million plus a billion:

# No. of investors who traded on the National Stock Exchange’s cash market in the first quarter of 2010 (April-June): 30.90 lakh

# Retail investors, high networth individuals and corporate customers who traded in this period: 52%

# Institutional investors and proprietary traders who traded: 48%

In other words, the big bogey about institutional investors, Indian or foreign, is a big bogey. Truth is retail investors are more in number in institutional investors, although their quantum of participation may be smaller.

# Of the 30.90 lakh investors, 90% of the trading in the April-June quarter came from a grand total of 192,200 investors

# 80% of the turnover came from 41,654 investors

# 1,50,546 investors (that is 78% of the 30.90 lakh investors) accounted for 10% of the trading turnover

# 8,727 investors accounted for 70% of turnover of which 413 were proprietary trades, mainly brokerage houses

# 60% of trading from 1,563 traders

# 50% of the trading turnover came from 451 traders, of which 156 were proprietary traders.


The numbers are equally dismal in the much-vaunted derivatives segment which saw trading of Rs 58,31,715 crore in the first quarter of the current financial year. In response to question 1692 from Mohammed Adeeb, the minister revealed:

# Only 5.75 lakh clients traded in derivatives in the three-month period

# Of these, 90% of the trading came from 18,035 players. Meaning 97% accounted for 10% of trading, while 3% accounted for 90%

# 2,188 investors accounted for 80% deriatives turnover

# 537 investors accounted for 70% of trading

# 223 investors accounted for 60% of trading, of which over half were proprietary brokerage firms

# 50% of NSE derivatives trading came from just 106 investors, of which 58 are proprietary traders

# 67% of all tansactions in the derivatives markets are by day-traders

Infographic: courtesy Money Life

Read the full articles here: Part I, Part II

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