Selection of F&O scrips baffles market analysts

The selection of stocks for derivatives (F&O) trading on the National Stock Exchange (NSE) continues to raise eyebrows.

Fifteen stocks, which were recently included in the (F&O) segment, have decent trading volumes in the cash market. However, analysts feel that many stocks that have higher trading volumes have been ignored by the exchange and do not figure in the F&O segment.

NSE introduced 15 new stocks "� Global Broadcast News, Hindustan Zinc, Jindal Saw and NIIT "� in the derivatives segment from Friday, taking the stocks available in the F&O category to 222. 
 

OFF THE LIST Big guns don't figure in derivatives segment despite high trading volumes
Volume in lakh	October '07		November '07
	BSE	NSE	BSE	NSE
Apollo Tyres	4.97	9.27	9.78	16.21
Union Bank of India	5.65	16.46	3.78	13.19
Indiabulls Financial Services	13.30	31.76	8.13	19.62
ABG Shipyard	0.22	0.44	0.36	0.69
Gujarat State Petronet	3.41	4.66	32.41	25.32
Torrent Power	24.46	27.01	5.12	6.19

Derivatives analysts are perplexed with some new entrants in F&O and point out that there are many highly liquid stocks in the cash segment that deserve to be in the derivatives segment. Some new entrants do not even have strong fundamentals, they add.

Some of the notable omissions from the F&O list are Gujarat State Petronet (average daily turnover of 900,000 shares on BSE and 800,000 shares on NSE) Union Bank of India (164,257 on BSE and 804,956 on NSE), Indiabulls Financial (700,000 shares on BSE and over 2.8 million on NSE), Torrent Power (200,000 on BSE and 120,000 on NSE), ABG Shipyard (over 2.4 million on NSE alone) and Apollo Tyres (over 1.5 million on BSE and over 1 million on NSE).

Development Credit Bank (DCB), Wire & Wireless, Network 18 Fincap and Global Broadcast have suffered losses in the current financial year and yet figure in the derivatives segment, say analysts.

An NSE executive said all stocks selected were eligible under the norms prescribed by the Securities and Exchange Board of India (Sebi) for the F&O selection.

According to the rules, a stock can be selected for F&O trading from among the top-500 stocks based on the average market capitalisation (m-cap) and average daily traded value in the previous six months on a rolling basis.

Further, the marketwide position limit in the stock should not be less than Rs 50 crore.

Since the marketwide position limit for a stock is computed at the end of each month, exchanges should ensure that stocks comply with this criterion.

Last May, when NSE introduced 31 stocks in the derivatives segment, there was criticism from market analysts, who felt that some eligible stocks were conspicuous by their absence.

Anita Gandhi, head of institutional sales, Arihant Capital Markets, said: "Investors trade in the F&O segment mainly to take a short-term view on stocks. But when companies are making losses, not many would like to take a call on them."