Riding on reform wave, derivative turnover at 8-month high in Dec

Written by Ankit Doshi | Mumbai | Updated: Jan 26 2013, 07:18am hrs
Average daily turnover in the equity derivative (F&O) segment surged for the eighth consecutive month in December on renewed interest among investors and greater optimism in the Indian equity market after a slew of reforms by the government.

As per exchange data, average daily turnover in the F&O segment on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) stood at R1.77 lakh crore the highest in eight months. In November and October, average daily turnover stood at R1.51 lakh crore and R1.49 lakh crore, respectively, exchange data show.

Market experts and derivatives analysts attributed the increase in derivative turnover to a sharp increase in turnover of index options after Nifty broke the crucial level of 5,350 and 5,600 for the first time in September. The trend continued in December after Nifty, again, crossed a crucial psychological resistance of 5,900.

After trading range bound, the breakout in Nifty forced many people to close existing positions and open new ones, leading to a spurt in derivatives turnover, said Vishal Kshatriya, senior derivative and technical analyst, Edelweiss Financial Services.

Kshatriya said that while turnover in equity derivatives increased to an eight-month high, open interest in Nifty futures declined to an eight-year low, which indicated unwinding of long positions and increase in speculative trading. Analysts also pointed to a sharp rise in turnover of index options that led to an overall increase in turnover, as result of increase in volatility.

Volatility, as measured by CNX India VIX, rose to 16.68 on November 19 after falling to an all-time low of 13.04 on October 22. Similarly, India VIX increased to 16.62 levels on December 5 after it fell 13.96 in last week of November.

Volatility index is a measure of markets expectation of volatility over the near term. Volatility index is a measure of the amount by which an underlying index is expected to fluctuate in the near term based on the order book of the underlying index options. India VIX is a volatility index based on the Nifty index option prices. Its calculation indicates the expected market volatility over the next 30 calendar days.

In contrast to December, derivatives turnover has marginally cooled down in January. As per exchange data, turnover in equity F&O stands at 1.48 crore so far in January with four more sessions remaining.

Turnover might indicate that participation has increased. However, that is not the case and existing players continue to trade in the market... Indian investors are still shying away from the market, said Siddharth Bhamre, head derivatives, Angel Broking.

However, analysts were of the view that January would be at par with December, as Nifty crossed the crucial level of 6,000 and has sustained the level despite the sharp fall in past few sessions. In addition, analysts also remained hopeful of healthy volumes and turnover due to expiry of January series, which is due on January 31.

Interestingly, turnover in equity cash market also surged to multi-month highs in January as fiscal consolidation measures by the government, coupled with strong capital inflows and re-rating by foreign portfolio investors, led to improvement in sentiments.

The market has performed well in the last few months and investor activity has increased on the basis of reforms. Retail participation is also showing signs of improvement and expect sentiment to remain healthy going forward, despite the recent blips in the market, said Hrishikesh Parandekar, CEO & group head, broking, wealth management and asset management, Karvy Group.

As per exchange data, turnover in the BSE and the NSE equity cash market stood at R15,193 crore so far in January. Cash turnover stood a little over R14,500 crore in December, R12,796 crore in November and nearly R13,850 crore in October.