Informist, Friday, Jul 26, 2024

By Rajesh Gajra

MUMBAI – The Securities and Exchange Board of India's study released Wednesday on profits and losses made by individual traders from intraday trading has expectedly led to excited chatter among market players. Multiple interpretations are being made but no one is alarmed, as yet. The main finding in SEBI's study is that 71% of individual traders who undertook intraday trading in the cash market in 2022-23 (Apr-Mar) incurred losses.

There is a view, a rigid one, among regulatory and government circles that speculative trading activity in the equity market is an unproductive economic activity. The latest SEBI study is expected to be used by these circles in a way that fits in their narrative.

"When we hear that 70% of intraday traders in the equity cash segment are losing money, it sounds alarming (but) doesn't necessarily imply marketwide risk," Sanjay Israni, partner at Desai & Diwanji, a specialist firm in litigation, told Informist. High loss rates might also prompt traders to adjust their behaviour, such as trading less frequently or managing risks more effectively, which could lessen the immediate impact on market stability, Israni said.

Pointing to the granular data from SEBI's study, some analysts said there was no need to be alarmed. The proportion of loss-makers was lower at 60% in 2022-23, 59% in 2021-22, and 50% in 2018-19 for all retail intraday cash market traders with annual turnover between 50,000 rupees and 500,000 rupees.

Even among traders with annual turnover between 500,000 rupees and 2.5 mln rupees, the share of loss-makers was 62% in 2022-23, 64% in 2021-22, and 58% in 2018-19. The share of loss was much lower than the 71% cited by SEBI for the entire universe of intraday retail traders covered in its study.

Further, as per the study, the average of the losses of the loss-makers was only 5,371 rupees in 2022-23, as against the average profit of 5,989 rupees of the profit-makers. The Institutional Equities Research team of Kotak Securities said that the average loss of cash market traders was much lower than the average loss of 80,000 rupees made by equity futures and options traders, and 71% share of loss-makers in cash market trading was also lower than 90% in derivatives trading.

The brokerage was referring to an earlier study by SEBI released in January 2023 which concluded that nine out of 10, or 90%, of individual equity futures and options traders had made losses in 2021-22.

In intraday trading, whenever there is leverage you are running against time and risks turn high, Kranthi Bathini, director-equity strategy, WealthMills Securities, told Informist. He said that between the trading hours of 0930 IST and 1530 IST, traders have a lot to deal with, including volatility. At times volatility is a trader's strong friend, at other times it is a vicious enemy, according to Bathini.

Leverage in cash market trading comes from the margin trading facility. Under this, large brokerages such as ICICI Securities and HDFC Securities lend funds to their cash market clients for trading purposes. The total margin trade finance book of the broking industry is currently over 700 bln rupees, 2.7 times more than 260 bln rupees at the end of March 2023.

Kotak Institutional Equities said there was no certainty that even if intraday traders shift to creating portfolios that are held for a longer duration, their profitability will be better than intraday and futures and options trades. End

Edited by Aditya Sakorkar

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