MUMBAI, Jan 5 (Economic Times): Indian stock markets may have yielded the best returns among global markets but they lag far behind their peers in terms of trading turnover.

Traded turnover to market capitalisation, or share turnover velocity (STV), stood at 45 per cent and 9 per cent, respectively, for BSE and NSE last year, among the lowest in a decade, compared with more than 100 per cent STV for overseas peers Nasdaq, Korea Exchange, Shanghai SE, Shenzen SE, Tokyo SE group. These bourses enjoy a much higher liquidity, World Federation of Exchanges data shows.

A low STV indicates poor breadth and liquidity of the market. The current turnover velocity of NSE and BSE has been declining over the past few years. Significantly, the turnover velocity on Indian bourses has dipped even though indices gained more than 25 per cent last year.

A higher turnover velocity lowers the impact cost for investors while a lower turnover velocity drives up the impact cost. Analysts point out that in India's case, share turnover velocity should not be calculated for the NSE and the BSE separately as most of the scrips are listed in both bourses.

"However, if we combine the velocity of two exchanges, it does not fare badly on an overall basis," said the head of institutional derivatives at a domestic brokerage.

Experts attribute factors like increasing concentration of trading in a few company stocks, high-promoter holding and declining retail participation in India for this trend.

Investors are attracted to markets with high share turnover velocity as it means low-impact cost.

Traders say that low liquidity increases the impact cost, which is the mark up or mark down observed while buying or selling the desired quantity of a stock with reference to its ideal price, and varies across stocks.

The low liquidity was apparently visible when a trader punched a sell order of mere 6.50 billion inadvertently, resulting in a 15-per cent crash in the Nifty index in a few seconds in October last year.