Even as benchmark indices dropped to their six-month lows in April and cash market volumes saw a sustained fall, activity in the derivatives segment stayed strong with the average daily turnover at R1.66 lakh crore, only a tad lower than its all-time high.

Traders said FIIs squared off their month-long shorts on index futures and initiated fresh longs in the space during the last 10 days of the month. They were also seen selling put options in line with their positive bias on the market.

For April, the combined average daily turnover (ADT) of the BSE and the NSE for cash segment stood at R12,589 crore, down 5% from March and its lowest since August 2012. While the turnover of the derivatives segment also fell 7%, it still stayed close to the record 1.79 crore it recorded in the previous month.

Market observers also pointed out that choppy market behaviour amid a slowdown in FII flows in the first half of April saw a reduction in the number of stocks in which the cash market activity was concentrated.

?Even higher market volatility boosted the activity in derivatives even as cash market participation was hampered and shifted to a fewer number of stocks,? added a trader.

He said market participants are still not confident enough of the market rally due to troubled economic fundamentals and, hence, are largely staying away from smaller counters.

During the month, the 50-share Nifty fell below the 5,500-mark for the first time since mid-September 2012 before rebounding 9% as on Thursday. Post these gains, while the large-cap benchmarks have managed year-to-date gains of close to 1.5%, many smallcaps and midcaps are still representing declines in the first four months of the year. The BSE small-cap index is down 17.9% for the year so far, while the mid-cap index has lost 10% of its value during the period.

India VIX, the gauge of underlying market volatility averaged 15.7 in April, for the first time in seven months. It is believed that this rise gave a boost to volatility trades, which include buying options and hedging its sensitivity to the underlying index or stock through futures. Opportunities for such trades increased as the daily price swings in the market went up; Nifty’s daily range averaged at 73 points in April, the most since June last year.