Trading on derivatives contracts of the two sectoral indices of NSE, CNX PSE ( Public sector Enterprise) and CNX Infra commenced on Friday. The turnover of these new derivatives on their debut trade collectively stood at about R102 crore. The exchange currently doesnt levy any transaction charges on trades of these contracts for a period of first six months to encourage participation. With the introduction of futures and options (F&O) contracts on these two indices, the number of sectoral indices on which derivatives can be traded has increased to four, including the Bank Nifty and CNX IT.
While traders acknowledged the introduction of derivatives on the two sectoral indices, they also noted that the trading activity in these derivatives would ultimately depend on the liquidity. They also felt that given the difficult times for the market currently, this new product might take longer than usual to see considerable interest in terms of trading activity.
?Any derivative product sees a initial gestation period during which the liquidity remains low as traders wait for increase in participation. However, the eventual success depends on their popularity amongst the traders as well as the popularity of the sector on which it is based,? said a derivatives trader who did not want to be named.
According to NSE, the introduction at this juncture had no specific reasoning excepting that both the indices fulfilled the eligibility criteria for introduction of derivatives contracts. ?For introduction of derivatives contracts on any sectoral indices, stocks contributing to at least 80% weightage of the index should individually eligible for derivative trading and no single ineligible stocks in the index shall have a weightage of more than 5% in the index. Since both these indices satisfy this criteria, the derivative contracts on CNX PSE and CNX Infra have been introduced,? said Suprabhar Lala, VP, NSE.The exchange hopes that both the segments would witness good activity in the coming months benefiting from the prospects of both the sectors in terms of their importance in a growing economy.
Amongst the two sectoral indices which are already in the derivatives segment, the Bank Nifty is popular with an average daily open interest of 1 lakh contracts in the last three months, according to the data provided by NSE. On the other hand, the response to F & O contracts on CNX IT, which were introduced well before that of Bank Nifty, still remains tepid. The average daily open interest for the derivatives on CNX IT has remained as low as 378 contracts in the last three months.
According to Siddarth Bhamre, head of equity derivatives at Angel Broking, the popularity of derivatives on Bank Nifty could be attributed to significant weight the sector holds in the benchmark index Nifty. ? The banking stocks in general see good trading interest given that the sector gets affected by a number of economic and policy developments. Even their higher contribution in the Nifty of about 25% also add to their popularity amongst traders,? he added. Infrastructure currently has about 10% weightage in Nifty while publci sector enterprise constitute 8% of Nifty.
However Bhamre believes that in the current market scenario of high volatility, where traders are finding difficult to make money, there is tendency to use using the existing products and strategies instead of newer products.