India fourth largest equity market but lags its smaller peers in turnover velocity

Despite being the fourth-largest equity market globally, India's turnover velocity is significantly lower at 54%, compared to markets like South Korea (172%) and the USA (148%). This disparity is attributed to concentrated trades and high promoter holdings. Increased retail participation and shifting household savings to financial assets could boost turnover.

India may be the fourth largest equity market in the world, but the equity turnover on exchanges as a percentage of total market capitalisation is very low, which stands at 54%. In contrast, the 13th largest equity market South Korea — boasts a turnover velocity of 172%, which is even higher than the USA- the largest equity market in the world. NSE While the USA has a turnover velocity of 148%, the ratio for China and Canada stood at 283% and 82%, respectively.

Similarly, at 68%, Germany occupies the 5th spot in turnover velocity. Turnover velocity is the ratio between the cash market turnover of domestic shares and their market capitalisation. With a market capitalisation of $5.

5 trillion, India is ranked fourth after the US, China and Japan. In comparison, South Korea commands a market capitalisation of $1.8 trillion whereas Canada positioned sixth with a market capitalisation of $3.

3 trillion. Despite increased retail participation, India continues to have lower turnover velocity due to high concertation trade and significantly higher promoter holding. For instance, on Thursday (October 17), the total of turnover of companies listed on the NSE stood at nearly Rs 1 lakh crore.

Of this, more than a fourth of turnover was contributed by a handful of 17 stocks including Bajaj Auto, Reliance Industries, Mphasis, Infosys, BSE, State Bank of India and others. However, analysts at JM Financial believe that a marginal improvement in turnover velocity can increase share trading turnover significantly. “Turnover velocity typically increases significantly as the market matures and NSE is ideally positioned to capitalise on the consequent volume surge,” wrote the domestic brokerage in a note.

Further, a shift in household savings to the capital markets will also boost exchange turnover. Currently, about 70% of household savings lie on physical assets such as gold and real estate. As a result, the share of financial assets in total savings is abysmally low compared to other developed countries.

Turnover in the stock market indicates how much trading activity took place on a given business day in the market as a whole or individual stock. Stocks with higher turnover enjoy better liquidity in the market..