When it comes to global fund flows, India easily ranks among the top destinations for global equity investors, who have pumped in a record net $29 billion so far in 2010.
STV is the ratio of traded turnover to market capitalization and a high ratio signifies better liquidity. Globally, investors are attracted to markets with a high STV, as it means a lower impact cost. Again, impact cost is the deviation from the ideal price that an investor would have otherwise paid for buying or selling a stock. This happens when the ‘buy’ or ‘sell’ order is large compared with the trading volume in the stock.
Experts attribute factors like concentration of trading in a few companies, high-promoter holding and low retail participation in India to this trend. STV for the NSE and BSE stood at around 60% and 20%, respectively, this year, compared with over 100% for stocks in Australia , Korea, Shanghai, Shenzhen, Taiwan and Tokyo, among others , according to data by World Federation of Exchanges (WFE).
India is still in many ways in the first wave of entrepreneurship due to which promoter holding is very high. Also, large number of fresh issuances is leading to increase in market cap but low turnover.
The impact of STT and low arbitrage opportunities has kept the high volume creators and arbitrageurs away from the market and unavailability of single tick-data does not allow for high frequency trading,” he said. Promoter shareholding in India is over 50% in the Indian market, compared with 10-15 % in countries like the US.
Source :ET
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