Is the upcoming Sebi meeting on F&O spooking the markets? What analysts say

Experts believe the market fall seems to be part of routine profit-taking given the sharp 3,000-point rally in the Nifty 50 index post Lok Sabha election outcome.

Equity market went into a tail-spin in trades on Wednesday, with both the S&P BSE  Sensex and the NSE Nifty down over 1 per cent in intra-day deals amid fears of stricter regulations for futures & options (F&O) trading.

The market has been abuzz with talks of potential measures that Sebi may take to combat rampant trading in the F&O space. 

In June, the market regulator – the Securities Exchange Board of India (Sebi) constituted a working group chaired by G Padmanabhan, former executive director of the Reserve Bank of India, to suggest measures to enhance investor protection and risk management in the derivatives segment.

This comes, after a study revealed that retail participation in the F&O segment rose multi-fold in the post Covid-19 era. The study also highlighted that nearly 90 per cent of the F&O trades incur net losses. The average loss of retail traders in F&O amounted to Rs 1.1 lakh in the fiscal year ended March 2022.

The Sebi appointed panel is scheduled to meet on July 15 to take broad suggestions from various market participants. The proposed changes could lead to an overhaul of the current offerings and framework, stated a Business Standard report.

However, experts believe that today’s market reaction is just a routine correction as the benchmark indices had rallied sharply from the Election Day lows.

“The Nifty has surged more than 3,000 points from the Lok Sabha result day low, and today’s 1 per cent fall in the index, was anyways due”, said Nandish Shah, senior derivatives analyst at HDFC Securities.

The fall accentuated as once traders saw prices falling, they rushed in to liquidate holdings where they were sitting with significant profits, Nandish added.

Commenting on possible stricter norms for F&O trading, Nandish believes it at most could impact volumes; but we need to wait and see what the actual measures shall be and how they were to be implemented.

Echoing similar views, Kranthi Bathini, Director,Equity WealthMills Securities believes that today’s market fall is more of an expected correction. 

“Investors must be looking to take home some gains ahead of Q1 earnings, and possible F&O meet uncertainty”, Kranthi said. He adds that the overall sentiment is likely to remain positive as long as the Nifty 50 index remains above the psychological 24,000-mark.