Liquidity at BSE and NSE – A Study

Investors would invest in those financial markets which yield a decent return along with an optimal risk. One of the risk the investors would prefer to avoid is the ‘Liquidity Risk’. All the major players in the financial markets (especially the players in the equity markets) would measure and monitor the ‘Liquidity’ in the markets on a regular basis and change their strategies accordingly. The liquidity across the various asset classes and across the markets is not same and requires different metrics to measure them. The present paper is an attempt to conduct a preliminary analysis of liquidity in equity segment of BSE and NSE. To have a comparative picture of liquidity across various popular global equity markets, initial analysis was conducted on select global equity markets by using parameters such as: Mcap.-to-GDP ratio, Turnover Ratio and Traded Value Ratio. On the same lines, liquidity at both BSE and NSE were analyzed. Apart from the said three ratios for measuring liquidity, the frequency of trading at the Indian stock exchanges has also been analyzed. The data for the study is drawn from secondary sources and the period of analysis depends on the availability of data for the said variable. The study shows that the Indian stock markets are relatively more liquid than the other stock markets in the emerging economies. The current study also confirms the earlier study that over a period of time NSE has gained more liquidity when compared to the peer BSE.