These small-cap stocks saw high delivery ratio despite market correction

Stocks move due to activities of two sets of participants in capital markets—traders and investors. While traders are also investors, they are essentially short-term momentum investors and some invest for as short a time period as a few minutes to a few hours within a single trading session or day.

A stock could be a traders’ favourite because of volatility in the price providing an opportunity to take advantage of sharp ups and downs, but could still provide a meaningful opportunity for long-term investors to put some of their money.

But one filter that some long-term investors use to decide on new stock picks is where the delivery ratio of stocks is high. The delivery ratio represents the proportion of shares that have changed hands for good and not just for intra-day trading. Stocks with a high delivery ratio means that people took positions in those stocks at least for a few days or possibly even for months or years.

With the price correction in Indian indices over the last couple of weeks, we scanned through the data to pick stocks that have seen higher delivery ratios last Friday compared to the monthly average.

Interestingly, the bloodbath last week saw broad bearish sentiments across companies but in particular there were no large or mid-cap stocks that saw high delivery percentage. In contrast, there were around 185 small caps that saw high delivery percentage compared to the monthly average.

Out of these, in 109 stocks the entire shares were traded for delivery. Of the rest, delivery ratios figured in the 90-100% range.

We picked a set of eight small caps with market capitalisation of over Rs 1,000 crore that saw a high delivery ratio. These were: Reliance Power, Ion Exchange, Manali Petrochemical, Nahar Spinning Mills, Bajaj Hindusthan Sugar, Tilaknagar Industries, Gulshan Polyols and Ajmera Realty.

Barring Ion Exchange, all the other seven saw 100% shares traded for delivery last Friday. All of these stocks had previously reported monthly average of 67-90% delivery ratio.

If we move further down and scan through stocks with a market valuation of Rs 500-1,000 crore, we get a set of another five stocks: Music Broadcast, Sintex Industries, Shree Global, Nagarjuna Fertilizer and ISMT.

To be sure, whether this high delivery activity was due to the averaging out strategy of retail investors or real broader buying is something that would dictate their future trajectory.