BAJAJ BROKING

Notification close image
No new Notification messages
card image
Anondita Medicare IPO is Open!
Apply for the Anondita Medicare IPO through UPI in just minutes.
delete image
card image
Start your SIP with just ₹100
Choose from 4,000+ Mutual Funds on Bajaj Broking
delete image
card image
Open a Free Demat Account
Pay ZERO maintenance charges for the first year, get free stock picks daily, and more.
delete image
card image
Trade Now, Pay Later with up to 4x
Never miss a good trading opportunity due to low funds with our MTF feature.
delete image
card image
Track Market Movers Instantly
Stay updated with real-time data. Get insights at your fingertips.
delete image

What is Share Turnover: An Overview

Some stocks are easier to buy or sell than others as they are more liquid. To assess a stock's liquidity, share turnover is an important indicator. To understand the share turnover, you need to divide the total number of shares traded during a time frame by the average number of shares during that same period. If the share turnover is higher, it means the stock is liquid and frequently traded, and vice-versa. As an investor who wants easy buying or selling of a stock, share turnover can be a helpful figure. 

Institutional investors or traders who look for large volumes may go with stocks with high turnover. However, you must note that the share turnover is different from the turnover rate of an exchange-traded fund (ETF) or mutual fund. In this guide, we will discuss why share turnover is important and how it can be derived. So, read on for more details. 

Understanding the Meaning of Share Turnover

Share turnover is an important gauge of the liquidity of a stock, which measures how often a firm's shares are exchanged within a given time. It is calculated by dividing the number of shares exchanged by the average number of shares outstanding over the same period. A higher ratio indicates that the stock is actively traded and hence more liquid—i.e, more favourable for investors to buy or sell shares without causing a meaningful impact on the market price. 

This can be very attractive to traders and institutional investors who want smooth execution and narrow bid-ask spreads. It's worth noting, though, that share turnover simply measures trading volume against supply; it says nothing about the health, performance, or investment promise of the company. The correct interpretation of share turnover demands an understanding of a number of subtleties.

For example, a high ratio of turnover might result from momentum, prompted by news, earnings announcements, or sentiment, rather than sustainable value. Also, smaller firms tend to have higher percent turnovers just because a small float makes even modest volume register

In contrast, big-cap stocks with high-priced shares may have lower turnover rates because selling several shares is a small percentage of total outstanding. As share turnover only measures quantity and not quality, it should not be employed alone. Investors must use it together with valuation multiples, underlying factors, and industry norms to establish a holistic picture of a stock's attractiveness and tradability.

Formula and Calculation of Share Turnover

Share turnover is a useful metric that helps investors evaluate how frequently a company’s shares are traded over a specific period. It reflects the stock’s liquidity and trading activity. A higher share turnover ratio generally indicates greater liquidity, meaning the stock can be bought or sold easily without causing major price changes. 

This is particularly important for institutional investors who need to move large volumes. On the other hand, a lower turnover ratio might suggest limited trading activity and less liquidity, which can make it harder to enter or exit positions efficiently.

To calculate share turnover, you divide the total trading volume of a stock during a particular period by the average number of shares outstanding during that same period. The trading volume includes all shares that changed hands, both purchases and sales, while the average shares outstanding can be taken as the average of shares at the beginning and end of the period. This gives a ratio that can be expressed as a decimal or percentage.

Formula:

Share Turnover = Trading Volume ÷ Average Shares Outstanding

Example:

If a company trades  500 lakh shares in a month and has 5,000 lakh shares outstanding on average,

Share Turnover = 500 ÷ 5,000 = 0.10 or 10%

This means 10% of the company’s shares changed hands during the month.

Importance of Share Turnover in the Stock Market

Share turnover is a useful tool in several aspects. These include:

  • Measures Liquidity

It indicates that a high share turnover ratio reflects a highly liquid stock, i.e., investors can quickly purchase or sell the shares without substantially influencing the price.

  • Reflects Market Interest

High turnover stocks tend to receive greater attention from investors and traders, reflecting active participation and interest in the market.

  • Helps in Trade Execution

Increased turnover typically results in narrower bid-ask spreads, facilitating smoother and cheaper trade execution for institutional and retail investors.

  • Marks Volatility and Momentum

An unexpected increase in turnover could indicate price movement or momentum initiated by news, earnings announcements, or sentiment.

  • Helps Stock Analysis

Share turnover is used by investors to compare liquidity among different stocks or sectors to enable them to select securities that are compatible with their strategy and risk preferences.

  • Facilitates Institutional Decision-Making

Large investors prefer stocks with higher turnover to avoid slippage and to enter or exit positions with minimal price disruption. 

  • Not a Measure of Quality

While useful, share turnover doesn’t reflect a company’s financial health or performance, it only shows how frequently shares are traded.

  • Supports Technical Analysis

Traders often analyse share turnover along with price movement to confirm trends, breakouts, or reversals.

  • Useful in Risk Management

Liquid stocks with stable turnover tend to be easier to handle in terms of entry/exit, so they are less risky in fluctuating markets.

Factors Influencing Share Turnover

There are several factors that may influence share turnover. Some of these are:

  • Stock Liquidity

Stocks that can readily be bought and sold tend to have higher turnover. More liquid markets have a larger number of traders, so more activity occurs.

  • Investor Sentiment

Positive or negative news, earnings announcements, or economic events can influence investor sentiment, driving behaviour, volume, and turnover.

  • Share Price Volatility

Stocks with high price volatility are traded more by short-term traders, resulting in more turnover.

  • Public Float

Firms with a low float (stocks available for public trading) may have high turnover ratios despite lower absolute volumes.

  • Industry Trends

Some sectors, such as technology or financials, may naturally have more trading due to interest in the sector by investors, which affects turnover.

  • Index Inclusion

Stocks included in prominent indices (e.g., Nifty 50, S&P 500) tend to have higher turnover since they get purchased and sold by index funds and ETFs.

  • Trading Volume Trends

Stocks that consistently have high daily or weekly turnover typically have higher turnover ratios.

  • Regulatory Changes

Policy revisions, tax reforms, or new compliance regulations may influence investor behaviour and hence turnover.

  • Company Announcements

Dividends, mergers, stock splits, or changes in leadership can induce additional trading activity and increase turnover.

Conclusion

Share turnover is an important measure of a stock's liquidity and trading activity. It allows investors to gauge the ease with which they can enter and exit positions without affecting the price of the stock. Though increased turnover indicates high market interest and easier trade execution, it must be weighed against other financial indicators. 

Share turnover is not a gauge of a firm's quality or performance but is a useful tool for the analysis of market action and sound investment decisions.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Bajaj Broking Financial Services Ltd. (BFSL) makes no recommendations to buy or sell securities.

Share this article: 

Frequently Asked Questions

No result found

search icon
investment-card-icon

Gold vs Silver Investment: Comparison for Your Portfolio

Compare gold and silver as investment options by evaluating risk, returns, liquidity, and long-term performance to align with your personal financial goals.

investment-card-icon

What is Pledge Margin and How to Use it for MTF?

Learn how to use Pledge Margin on Bajaj Broking to trade without liquidating your holdings. Boost your buying power using stocks as collateral. Step-by-step guide inside.

investment-card-icon

What is Commodity Arbitrage and How Does it Work

Learn about commodity arbitrage - a strategy used in financial markets to profit from commodity price differences. Discover how it works and get started with it.

investment-card-icon

What is Percentage Gain and How is it Calculated.

Percentage gain helps you understand how much your investment has increased in value, with respect to the original value.

investment-card-icon

What is Share Capital- Types, Working & Examples

Share capital is the amount raised by a company through issuing shares to investors. Know its types, importance, and how it impacts business growth and funding.

investment-card-icon

Types of Share Capital with Key Facts Investors Must Know

Confused about share capital types? Know the key differences between equity, preference, authorised, and issued share capital with practical, real-world examples.

investment-card-icon

What are The Oldest Mutual Funds: Advantages & Performance

Oldest mutual funds in India are those by companies that have operated for decades and were pioneers in the country’s mutual fund industry.

investment-card-icon

How to Change Name in EPF Account: Step By Step Guide

Learn how to change your name in EPF account online or offline to avoid claim delays and ensure smooth e-KYC processing with updated Aadhaar records.

investment-card-icon

Foreign Exchange Control Meaning, Rules & Country Examples

Foreign exchange controls impact trade, currency flow, and policy. Get detailed insights into their goals, effects, practices, and global enforcement patterns.

investment-card-icon

Advantages of SIPs in ETFs: Start Small, Grow Your Wealth

SIPs in ETFs let you invest small amounts easily while benefiting from cost-effective diversification, liquidity, and compounding returns over time.

Disclaimer :

The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes.

The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.

Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.

BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.

Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

[ Read More ]

For more disclaimer, check here : https://www.bajajbroking.in/disclaimer

Our Secure Trading Platforms

Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading

Bajaj Broking App Download

10 lakh+ Users

icon-with-text

4.4 App Rating

icon-with-text

4 Languages

icon-with-text

₹5600+ Cr MTF Book

icon-with-text
banner-icon

Open Your Free Demat Account

Enjoy low brokerage on delivery trades

+91

|

Please Enter Mobile Number

Open Your Free Demat Account

Enjoy low brokerage on delivery trades

+91

|