Trading waters turn rough: Mkt swells drag cash and F&O volumes downstream

Not the time to raise the sail as investors batten down the hatches

Trading turnover in both the cash and derivatives segments fell in October, a sign that investors are turning cautious. This dip coincided with the benchmark indices recording their worst monthly decline since March 2020.

 

The average daily trading volume (ADTV) for the cash segment (National Stock Exchange/NSE and BSE combined) dropped by 12.4 per cent to Rs 1.14 trillion, the lowest level since April. The ADTV for the futures and options segment decreased by 3.5 per cent to Rs 518 trillion. After peaking at Rs 1.65 trillion in June, the cash segment ADTV has fallen by over 30 per cent. 

 

This drop in cash volumes occurred alongside the market regulator, the Securities and Exchange Board of India (Sebi), cautioning about the risks involved in intraday trading. In July, Sebi released a study showing that 71 per cent of intraday trades end in losses.

 

In October, the NSE Nifty fell by 6.22 per cent, while the NSE Nifty Midcap 100 and NSE Nifty Smallcap 100 declined by 6.7 per cent and 3 per cent, respectively. Several individual stocks saw even sharper declines, prompting some investors to halt their trading activity.

 

Meanwhile, derivatives volumes, although only marginally down from the peak reached in September, are projected to decline by 20-30 per cent in the coming months due to Sebi's stricter derivatives trading regulations taking effect.

 

Starting November 20, the NSE and BSE will only allow weekly expirations on one index each — NSE Nifty and S&P BSE Sensex, respectively. Both exchanges have announced the discontinuation of weekly derivatives contracts on Nifty Bank, Nifty Midcap Select, Nifty Financial Services, and BSE Bankex. What’s more, the contract size for index derivatives is set to treble. Other measures, such as the upfront collection of option premiums from buyers and intraday monitoring of position limits, will take effect next year.