Small's big: Mini - outshines Nifty

Low margin needs, hedging opportunities attract investors to the former.

Mini-Nifty is gaining popularity even as the Nifty futures are witnessing low activity following the lull in the markets, thanks to the low margin requirements and hedging opportunities.

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The number of traded contracts on the Mini Nifty stood at 1,06,800 on January 1 and has risen nearly 10 times till date.

The mini-Nifty contract has a lot size of 20 and is valued around Rs 1.2 lakh

Market participants say that lower margin requirements in the case of smaller contracts have helped in ensuring greater participation

The Chhota Sensex hasn't really taken off as its low liquidity deters investors from using it for hedging purposes

The trading volumes in the mini Nifty contracts introduced by the National Stock Exchange (NSE) in January this year have shown a steady rise, while the volumes in Nifty futures continue to be lacklustre.

The turnover on the Mini Nifty has been Rs 363.83 crore, while that on Nifty futures is Rs 17,823.94 crore. The number of traded contracts on the Mini Nifty stood at 1,06,800 on January 1 and has risen nearly 10 times till date.

The value of a Nifty contract, with a lot size of 50, is around Rs 2.5 lakh. The margin involved is also high at about 12 per cent. However, the mini-Nifty contract has a lot size of 20 and is valued around Rs 1.2 lakh.

Likewise, a Sensex contract has a lot size of 25 and a margin requirement around Rs 45,000. The lot size for a mini-Sensex is only 5 and the margin is around Rs 9,000.

Market participants say that lower margin requirements in the case of smaller contracts have helped in ensuring greater participation.

Also, with the markets in a bearish mode, a lot of investors are opting to buy specific stock futures and go short on the mini-Nifty, thereby partially hedging themselves, pointed dealers. Doing the same on Nifty futures would ensure a perfectly hedged position and thereby not lead to any profits, according to brokers.

"The introduction of stock lending and borrowing (SLB) from April 21 would certainly help boost volumes as people will take full advantage of the smaller contracts such as Mini Nifty. Reverse arbitrage (selling in equity and buying in futures) would take place and this would help in pushing up the volumes," explained a dealer.

The Chhota Sensex, the smaller contract introduced by the Bombay Stock Exchange at the same time as the Mini Nifty registered an average traded turnover of a mere Rs 58.49 crore. The Chhota Sensex hasn't really taken off as its low liquidity deters investors from using it for hedging purposes.

Moreover, the NSE has waived the transaction charges on all the trades in Mini Nifty contracts in both the futures and options. The transaction charges for a mini contract were around Rs 2 per lakh.

This has also worked to the advantage of the Mini Nifty, as it attracted arbitrageurs who have largely been out of the market since the change in the treatment of Securities Transaction Tax (STT). It made it easier for arbitrageurs to trade in the mini Nifty, said a broker.

Globally, mini-contracts attract investors in a big way due to higher liquidity and low impact cost.