City-Wise Concentration of Stock Market Turnover: A Deep Dive
Nithin Kamath recently shared some fascinating and somewhat surprising data about the city-wise distribution of turnover in the cash segment on India’s two primary stock exchanges—BSE and NSE. The data paints an intriguing picture of extreme concentration, with a significant chunk of trading activity coming from just two cities, Ahmedabad and Mumbai.
Mumbai and Ahmedabad Dominate the Cash Market
The data for November 2024 reveals a striking pattern. On the BSE, Mumbai accounts for 31% of the turnover, and Ahmedabad follows closely with 25%. The remaining 36% is distributed among other cities, with a handful of metros contributing less than 1% each.
On the NSE, Mumbai’s dominance is even more pronounced, contributing a massive 64% of the turnover. Ahmedabad accounts for 17%, while New Delhi and Hyderabad contribute around 2-2.5% each. The remaining cities combined account for a mere 7%.
This means that nearly 80% of the NSE’s cash market turnover originates from just two cities—an extraordinary level of concentration that raises questions about the dynamics of India’s stock trading landscape.
Possible Reasons for the Concentration
Mumbai as India’s Financial Hub:
Mumbai’s dominance is perhaps less surprising given its status as the financial capital of India. Many institutional investors, brokerage firms, and trading desks have their headquarters or major offices in Mumbai. The presence of stock exchange servers in Mumbai further facilitates high-frequency and algorithmic trading, which could explain the heavy concentration of turnover.
Ahmedabad’s Trading Culture:
Ahmedabad has long been known for its entrepreneurial and trading mindset. Over the years, the city has emerged as a hub for retail investors and traders. Many prominent brokers and proprietary trading firms have deep roots in Ahmedabad, contributing significantly to the city’s trading volume.
Lack of Representation from Other Major Cities:
It is surprising that cities like Delhi, Bangalore, Chennai, and Kolkata contribute so little to the turnover. These cities are economic powerhouses with thriving business ecosystems. The data could indicate that either retail investors and traders in these cities are more focused on other asset classes, or they participate less actively in the cash segment.
Impact of Jobbing and Algo Trading:
Jobbing (intra-day trading by market makers) and algorithmic trading likely skew the data heavily in favor of Mumbai and Ahmedabad. Many of these operations are set up close to the exchanges’ servers to minimize latency. This could explain why turnover appears so concentrated in these cities, even if the clients themselves are based elsewhere.
Implications of the Data
This concentration highlights a potential imbalance in the participation of India’s stock markets. While the two leading cities dominate, there seems to be limited penetration in other metros and smaller cities. This could be due to a lack of awareness, infrastructure, or resources needed to participate actively in the cash market.
Furthermore, the data underscores the need for diversification in terms of trading hubs. A broader geographical spread of market activity could strengthen the resilience of India’s financial markets and make investing more inclusive for participants across the country.
The Mystery of Polarization
The extreme concentration in Mumbai and Ahmedabad raises a few unanswered questions.
Are the clients themselves based in Mumbai and Ahmedabad, or are their headquarters and servers located there while the actual clients are spread across the country?
Does the high proportion of algo trading and institutional activity explain this disparity?
Are retail investors in other cities like Delhi, Bangalore, and Chennai opting for alternative investments like mutual funds or direct equities through smaller brokers?
Why do you think there’s such a stark concentration in just two cities? Is it cultural, infrastructural, or something else entirely? Share your thoughts in the comments.
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