Daily cash trading volumes on stock exchanges fell by more than 20% in fiscal 2023. This is the biggest drop in 11 years, as stock market volatility weighed heavily on investors.

According to Bloomberg, the combined average daily turnover of the cash segments of BSE and NSE equities was Rs 57,700 crore, down 20.4% from the previous year. It was the biggest drop since fiscal 2012 and the first decline since fiscal 2016 when it fell 5.4%.

Investor participation fell sharply in FY23 amid expectations of global central banks raising interest rates in response to inflation, geopolitical tensions and, more recently, US bank failures. Domestically, foreign investors continued to dump the Adani saga, while expectations that this year’s El Niño could dent earnings have dampened investor sentiment.

Still, mutual funds have maintained strong inflows, supported by retail investors with insight into long-term returns and prudent investment management.

Despite the gloomy market sentiment, analysts said the overall outlook is not so bleak. They said the recent rise in interest rates did not fully reflect banks’ and financial institutions’ funding costs, production costs and debt in the manufacturing and services sectors.

However, analysts said they expect a strong market rebound once interest rates stabilize within a few quarters and inflation slows. They suggested this could happen in the second half of FY24.

FY18 saw a similar trend, with an average daily turnover up 39% and a market return of 20%.

Analysts say this year has been particularly challenging for investors looking for solid returns, prompting them to focus on large-cap stocks that promise long-term, high returns. Given the lack of major developments in the near term, banking, IT, cement, and other growth industries are returning to the spotlight. In addition, next year’s elections are expected to spur public sector firms to deliver more stable and better returns.

Meanwhile, trading volumes in derivatives have held near record highs every month since last year. The average daily turnover of the derivatives sector in FY23 was Rs 150.67 lakh crore, up 120% from Rs 68.35 lakh crore in FY22.

Analysts say many market traders have been active in the options space because they believe they can generate handsome profits with minimal investment. Due to this interest, the popularity of FINNIFTY weekly options is also rising. This trend is expected to continue.