The recent downturn in small-cap stocks has caused daily trading volumes on Indian stock exchanges to drop significantly, with retail investors taking a step back until market stability returns. According to latest data, the average daily cash market trading has reduced to just $10 billion from a peak of $19 billion in early February. Most of this decline can be attributed to the recent sessions.
Warnings from SEBI about excessive valuations in small-cap counters triggered a pullback in these stocks last month. The BSE SmallCap index is down over 6% so far in March. Individual investors, who generally drive cash market activity, seem to be adopting a wait-and-watch approach and not initiating fresh purchases amid ongoing corrections. Market experts say retail participants tend to sit on the sidelines until a clear trend emerges.
Despite the broader correction, big-ticket block trades have remained strong with deal volumes crossing $7 billion so far in 2022, on track to be the best quarter for such trades in 14 years. Institutional investors continue chasing large stake acquisitions while retail interest has reduced temporarily. Once small-cap volatility comes down, retail participation is also expected to pick up gradually as select high quality stocks would look attractive at lowered levels.
For now, the fall in retail trading activity is slowing down the record pace seen in Indian equities earlier. But block deals point to sustained appetite among foreign and domestic institutional investors who have a longer-term view on Indian equities. A stabilisation in smallcaps in the coming months could bring retail back to driving volumes on domestic bourses.
