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Key Debate: How have investors behaved with respect to their holding periods through the volatility and tepid equity returns of the past four years?
The stock ‘renting’ culture of the previous decade seems behind us: Contrary to popular belief, investing (vs. speculating) has not been abandoned. Indeed, the holding period of all market participants on aggregate has doubled in the last two years. ‘Investors’ are now holding stocks for an average of nearly three years. The shift of speculative trading from the cash market to the derivatives’ market has helped.
FIIs appear more committed: In the previous bull market, FIIs bought stocks but reduced holding periods as the bull market matured. In the past three years, FII ownership has deepened and lengthened.
Market still seeking safety of large caps: Share of Sensex trading is still rising and this concentration of trading may mean that the broad market has not troughed if one uses just trading data as a guide.
Winners trade less, not more: The higher the trading velocity the poorer has been the performance of the stock over the past 12 months, we have found.
Investor holding period rises
•
Despite low returns from equities over the past two years, the average holding period for the market has surged from around 5 months to 10 months.
•
It is even better for investors – the holding period has expanded from around 20 months during the 2003-2007 bull market to 35 months now.
•
The evidence is that “renting” of stocks which was in vogue for the bulk of the previous decade is no longer the norm now.
FIIs lengthen holding period -FIIs Appear More Committed Than Before
There has been a dramatic change in the behavior of FIIs in recent months. Through the 2003-2007 cycle, FIIs bought stocks but held them for lower periods. At the end of the bull market, the average holding period had declined to just 14 months.
•
This has changed since and, currently, the net buying of FIIs has been accompanied with higher holding period. The average holding period is at a multi-year high of 22 months.
Speculative Activity Has Shifted to Derivatives
Cash market has lost share dramatically in the past 3 years
•
A large part of the speculative turnover has shifted out of the cash market into the derivatives market. Thus, intra-day trading has declined from its 2008 peak and is much lower than its 2000 peak.
•
This shift of speculative activity from the cash to derivative markets may also be a driver for the increased holding period of actual stock.
Sensex trading volumes still off highs
The share of trading of Sensex stocks in total traded volumes is rising. Usually a peak in this number coincides with a relative low for the broad market to the Sensex.
•
Given the rise in the share of trading of Sensex stocks, a relative trough in the broad market may be around the corner although we are not quite there if this indicator is a guide.
20% of Nifty constituents churn free float less than 5 months
•
The more a stock trades, the worse has been its performance. The top losers of the past 12 months are also the stocks that have maximum turnover.
•
There are several stocks in the Nifty which are witnessing a churn in their free float every quarter or more frequently.
Sharp Decline in Cash Trading Volume
The bad news for brokerages is that cash trading volume has declined sharply over the past few years.
•
The shift in trading system to derivatives has impacted cash trading over time. We may be in a new norm in terms of cash trading though there could be upside if a bull market ensued.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Debate: How have investors behaved with respect to their holding periods through the volatility and tepid equity returns of the past four years?
The stock ‘renting’ culture of the previous decade seems behind us: Contrary to popular belief, investing (vs. speculating) has not been abandoned. Indeed, the holding period of all market participants on aggregate has doubled in the last two years. ‘Investors’ are now holding stocks for an average of nearly three years. The shift of speculative trading from the cash market to the derivatives’ market has helped.
FIIs appear more committed: In the previous bull market, FIIs bought stocks but reduced holding periods as the bull market matured. In the past three years, FII ownership has deepened and lengthened.
Market still seeking safety of large caps: Share of Sensex trading is still rising and this concentration of trading may mean that the broad market has not troughed if one uses just trading data as a guide.
Winners trade less, not more: The higher the trading velocity the poorer has been the performance of the stock over the past 12 months, we have found.
Investor holding period rises
•
Despite low returns from equities over the past two years, the average holding period for the market has surged from around 5 months to 10 months.
•
It is even better for investors – the holding period has expanded from around 20 months during the 2003-2007 bull market to 35 months now.
•
The evidence is that “renting” of stocks which was in vogue for the bulk of the previous decade is no longer the norm now.
FIIs lengthen holding period -FIIs Appear More Committed Than Before
There has been a dramatic change in the behavior of FIIs in recent months. Through the 2003-2007 cycle, FIIs bought stocks but held them for lower periods. At the end of the bull market, the average holding period had declined to just 14 months.
•
This has changed since and, currently, the net buying of FIIs has been accompanied with higher holding period. The average holding period is at a multi-year high of 22 months.
Speculative Activity Has Shifted to Derivatives
Cash market has lost share dramatically in the past 3 years
•
A large part of the speculative turnover has shifted out of the cash market into the derivatives market. Thus, intra-day trading has declined from its 2008 peak and is much lower than its 2000 peak.
•
This shift of speculative activity from the cash to derivative markets may also be a driver for the increased holding period of actual stock.
Sensex trading volumes still off highs
The share of trading of Sensex stocks in total traded volumes is rising. Usually a peak in this number coincides with a relative low for the broad market to the Sensex.
•
Given the rise in the share of trading of Sensex stocks, a relative trough in the broad market may be around the corner although we are not quite there if this indicator is a guide.
20% of Nifty constituents churn free float less than 5 months
•
The more a stock trades, the worse has been its performance. The top losers of the past 12 months are also the stocks that have maximum turnover.
•
There are several stocks in the Nifty which are witnessing a churn in their free float every quarter or more frequently.
Sharp Decline in Cash Trading Volume
The bad news for brokerages is that cash trading volume has declined sharply over the past few years.
•
The shift in trading system to derivatives has impacted cash trading over time. We may be in a new norm in terms of cash trading though there could be upside if a bull market ensued.
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