The Indian stock markets appeared to have benefitted from the rout in equities in the last two months. The average daily turnover in the National Stock Exchange (NSE) for February was Rs 3.29 lakh crore – the highest ever.
Of the total average turnover, futures and options accounted for Rs 3.13 lakh crore, while the cash segment saw average daily trades worth Rs 16,459 crore, NSE website data showed. The Nifty declined 7.6% in February.
Prior to this, the Indian markets saw such a huge turnover during April 2015 when the markets started to correct from their peaks. The Nifty Fifty touched a lifetime high of 8,774.15 on 22 January 2015. The average daily turnover for April 2015 was close to Rs 3.2 lakh crore, data showed.
“The volumes usually go up whenever markets turn volatile. This is because of arbitrages which amplify the trade volumes. Derivatives markets usually drive the volumes up due to higher liquidity propelled by arbitrage opportunities.
Cash markets, on the other hand, grow or decline at a stable rate,” said an analyst from a leading international brokerage on condition of anonymity.
While average daily volumes in the futures and options segment have went up by nearly 25% since June 2015, the cash market turnover has increased by merely 8%.
The surge in derivative volumes is mainly on account of increased investor interest for options which have become a lucrative derivative segment in the last decade due to lower STT rates applicable compared to futures.
Since FY10, the turnover in the options segment has increased more than five times, surpassing that of the futures segment. So far in 2016-17, the total turnover in the options segment of the NSE has touched Rs 445.24 lakh crore and is nearly four times the traded value of futures during the period.
On the other hand, turnover in the futures segment has been impacted due to migration of trading activity to Nifty futures traded on the Singapore Exchange (SGX) in order to benefit from lower transaction costs and prior uncertainty over the general anti-avoidance rules (GAAR).
In order to contain this migration and improve volumes on its derivatives platform, the BSE had come up with initiatives such as liquidity enhancement incentive programmes (LEIPS) which offered derivative trades at lower transaction prices.
However, turnover data suggests the initiative has yielded limited results. During the period when the special incentives are offered, the BSE has seen the F&O turnover surging over Rs 1 lakh crore. Normally, the average turnover has been in the range of Rs 5,000-6,000 crore.