Delivery percentage surges in 2 months, the highest since April 2019

A combination of benign market conditions and new margin rules is making investors less averse to taking long-term positions. Delivery percentage showed a year-end rise and was at 39 per cent in the last two months, the highest since April 2019.

Investors tend to seek delivery for those stocks in which they see a long-term investment opportunity or tactical positional trade. For March 2020, the delivery-based trading stood at 37.2 per cent. However, Covid-triggered lockdowns across the world triggered fears of a recession, leading to a fall in delivery percentages in the subsequent months. The figure improved dr­astically in November and December. The new margin rules, a revival in mid- and small-cap stocks, and a buoyant IPO market are attributed to this revival.

From September 2020 onwards, brokers needed to collect upfront margins from investors. The peak margin norms came into effect from December. The maximum intra-day leverage that can be offered by a broker is restricted and will keep reducing until September 1, 2021. After this, a broker can provide maximum leverage that is equal to SPAN+exposure for the F&O segment and VaR+ELM for the cash segment. SPAN is standard portfolio analysis of risk, VAR is value at risk, and ELM is extreme risk margin — metrics used to determine the risk to investment for a particular security.

Leverage has reduced because of upfront margins on the cash market (in the derivatives market) because of the peak margin concept from December. “Earlier, leverage given to customers was high. But with the new margin rules coming to play from September, leverage reduced dramatically. And people have been opting for the cash market. Moreover, since the markets are doing well, people are happy taking delivery, rather than squaring it off the same day,” said Jaideep Hansraj, MD & CEO, Kotak Securities.

Prashanth Prabhakaran, MD &CEO, YES Securities said the new margin rules have “automatically curtailed trading instincts”.

The benchmark Sensex has gained more than 14 per cent on a year-to-date basis. The BSE Midcap index rose 19 per cent, and the BSE Smallcap index surged 31 per cent during the same period. Analysts said retail investors are mostly dealing with mid- and small-cap stocks as they are giving better returns. Moreover, there is a belief among investors that low-priced stocks have the potential to appreciate faster.

“Retail investors traditionally do not get into large-caps. The percentage of delivery is high in mid- and small-caps. After a long time, we have seen some broad-based participation, from a lar­ge-cap led market,” said Prabhakaran.

However, the delivery percentage is expected to taper from the current level. “With enhanced volatility, the over­all volume will increase, but delivery will decrease. Once we have 100 per cent peak margin reporting, the overall volume will come down, and delivery will look better,” said Dhiraj Relli, CEO, HDFC Securities.