Derivatives stabilise, may get 50% of cash market in 2002

Our Markets Bureau

Mumbai, Jan 1: In 2001, derivatives segment stood tall amongst the stock market ruins, with stock futures leading from the forefront amongst all the four derivative products introduced in the country. It was in July this year that the derivatives and the new rolling settlement both pushed badla trading out from the domestic bourses.

However, despite this new foray, The Stock Exchange, Mumbai (BSE) still had a very negligible presence in the derivatives market and could not mirror the success of the National Stock Exchange (NSE).

Derivative products, in the form of index futures were first introduced in the domestic stock markets on June 2000 but the index futures hardly received investors’ interest due to the age-old ‘badla’ and the bullish run in the market nearly preventing speculators and investors to try in any new product.

Thus, the derivatives segment started its firm footing in 2001 especially after the ban on ‘badla’ from July 2, 2002 and the introduction of stock futures which market players see a similarity with the ‘badla.’ Refco-Sify managing director Vineet Bhatnagar said, "The highlights of 2001 was the success of derivatives product and next year we expect the derivatives turnover to be at least the half of cash market turnover compared to the 25 to 30 per cent standing at present."

"The volumes in the derivatives product will see a rise as institutional participation will rise in 2002. The stage is set for the new players, especially the foreign institutional investors (FIIs). The market regulator has already cleared them. FIIs will exercise the same comfort what an investor has in derivative product as only a small RBI clearance is pending," Mr Bhatnagar said. "Over the next two years, the share of derivative products will atleast be on par with the cash market, if not more," he said.

However, in the race to get maximum volumes in derivatives product, the newest player NSE put the BSE behind by grabbing 97 per cent of total volumes in the derivatives segment within months of launching the stock futures. With just one month of introduction of stock futures, the turnover of derivatives segment rose by four to five times of the turnover witnessed in October without the product-stock futures.

After the index futures, index options were introduced in June 2001 while stock options were made available in July 2001. The introduction of stock futures in the family of derivative segment has nearly completed all the products in the derivative segment. The introduction of stock futures has also led to a rise in the turnover in cash segment, which was reeling following the introduction of rolling settlement with turnover falling by around 80 per cent from its January 2001 levels.

The highest recorded turnover in derivative product on the NSE was on December 6, 2001 with a total turnover of Rs 956 crore with stock futures contributing Rs 585.09 crore.

On Monday, the last day of trading in 2001, the total turnover on the derivative segment on the NSE was Rs 742.84 crore with stock futures contributing Rs 440.17 crore, stock option Rs 162.11 crore, Nifty future Rs 125.96 crore and Nifty option Rs 14.58 crore.
Meanwhile, the total turnover of derivatives segment on the BSE was a paltry Rs 2.55 crore.