More regulation needed to curb retail speculation in F&O: Amisha Vora

Sebi's proposed changes will significantly impact discount brokers, whose business relies heavily on retail F&O trades, Vora said in this interview

Volatility has gripped Indian stock markets at a time when the market regulator Securities and Exchange Board of India (Sebi) has introduced various measures to curb speculative bets in the futures & otpions (F&O) segment. AMISHA VORA, chairperson & managing director, PL Capital - Prabhudas Lilladher, tells Nikita Vashisht in an email interview that despite global uncertainties, India's strong fundamentals provide a solid foundation for sustained market growth, mitigating concerns of a bubble. Edited Excerpts:

How do you read the current market scenario?

Global developments such as the depreciation of the Japanese yen, an increase in interest rates in Japan, and a slowdown in the US economy as suggested by jobs data indicate that a confluence of these global factors, which impact funds flow from FIIs, can trigger a corrective phase in the equity markets. But despite global uncertainties, India's strong fundamentals provide a solid foundation for sustained market growth, mitigating concerns of a bubble.

 

Do you think Sebi's latest proposals around F&O trading would be enough to curb rampant derivative trading by retail investors?

Sebi's discussion paper introduces several measures to strengthen the derivatives market and enhance investor protection. The proposals aim to curb speculative trading, particularly by retail investors, and ensure market stability. The changes in the latest discussion paper, set to be implemented by September, aim to stabilise the market and protect retail investors from high-risk speculative trades. Although these measures might reduce trading volumes, they are a step in the right direction for long-term market stability.

How do you see Sebi's proposals affecting the broking industry?

Sebi's proposed changes will significantly impact discount brokers, whose business relies heavily on retail F&O trades. Retail investors, who typically trade during expiry and speculate over short spans, will be particularly affected as these practices are targeted by the new regulations. Consequently, trading volumes are expected to decline, impacting discount brokers. Traditional brokers, with higher transaction fees and a focus on research-backed trades and investments, are less likely to be affected. Hedge arbitrage traders will also remain largely unaffected.

Have you noticed any change in cash or F&O trading pattern of retail investors since Budget 2024?

Despite the tax changes introduced in the Budget, trading volumes remained robust. Data indicates an uptick in both futures and options volumes post-budget. We believe more regulations may be required, including the hike in margins / hike in lot sizes, to decrease retail speculation. We think regulatory changes may have a more significant impact on trading behavior than tax adjustments alone.

Do you think the growing regulatory norms are too stringent?

The increased regulation in equities aims to promote long-term investment and reduce speculative trading, which aligns with the overall goal of market stability. While taxes on other asset classes like gold and silver have been adjusted, the rationalisation of taxation across different asset classes ensures a balanced investment landscape. This promotes a level playing field, encouraging diversified investment strategies.

How has India Inc fared in June 2024 (Q1-FY25) quarter earnings thus far?

Q1-FY25 earnings have been mixed, with some sectors meeting expectations while others show minor disappointments. In a larger proportion, there is minor disappointment in meeting analyst/street expectations. Companies exceeding street expectations are few. It is prudent to look at high-quality low-beta sectors and stocks and increase weightage around that as compared to cyclicals.

Prabhudas Lilladher has completed 80 years in business. What are the 8 changes you wish to see ahead?

Going ahead, we hope the broking industry embraces enhanced technological advancements with continued integration of AI and big data analytics; has adaptive regulatory frameworks that keep pace with technological advancements; leverage technology to bring more of the unbanked population into the formal financial system, enhanced cybersecurity measures to protect investor data; have innovative financial products tailored to meet the evolving needs of a diverse investor base; promote ESG Investments and financial literacy; and increase transparency.