Investors see 10-15% correction before going for delivery-based buys

After the steep rise in share prices over the past couple of months, retail investors now seem to be having second thoughts about buying
at current levels in the absence of any key triggers near term. Their cautious mood can be gauged by the fact that delivery-based transactions have been dipping over the past couple of months.

Experts say that the market is currently trading at rich valuations and investors perceive that there is not much upside from these levels. This is leading to lower deliverybased volumes on bourses. “Unless there is a meaningful correction of at least 10-15%, delivery volumes may not rise from these levels,” says a dealer at a domestic brokerage.

On the National Stock Exchange (NSE), delivery-based volume for December and November stands at about 33% and 31%, respectively. As regards the Bombay Stock Exchange (BSE), the delivery figures stand higher at 42% and 41%, respectively, for the above period.

While NSE’s delivery volume figures stood at 39% for January 2008, it was 52% for BSE in the same month. Data show that the delivery figures are still not as high as what they were before the market peaked out. Delivery volumes are generally higher on BSE due to higher number of small-cap stocks, which retail investors lap up in huge quantities because of their low price in absolute terms.

In a delivery-based transaction, shares actually change hands from the seller to buyer who is generally expected to stay invested for some time. This is unlike day trading activity, which involves squaring off the transactions on the same day without actually delivering or taking ownership of the shares.

“Retail players with long-term perspective continue to stay away from the market. Moreover, a majority of the active investors are still sticking to large-cap stocks,” said a BSE broker. “Investors appear to be churning portfolios rather than buying afresh. Any shift in the preference will take one or two more quarter of better corporate performance,” he adds.

Market watchers say large fresh issuances by way of qualified institutional placement and preferential allotments have also resulted in higher number of shares finding their way into the system. Most of these shares are not easily absorbed by investors, as the funds raised by way of this equity dilution will become productive only in the next couple of years. This has also resulted in a negative bearing on the investor sentiment.

Foreign funds have been aggressive buyers for the past few months on account of abundant liquidity. However, their reluctance to take large exposure has also affected the momentum in the market, with key indices moving in a very narrow range in the past two weeks, with the exception of the past couple of trading sessions, when the Sensex rose over 650 points to close at a 19-month high.
~ET