MUMBAI: Volumes in the cash and the derivatives segments of the market have dropped by up to 25% during the Jan-Feb months compared to last year, thanks mainly to a bad market and Sebi’s stricter regulations for the derivatives segment that came into force last November. The hike in contract sizes in the F&O segment has affected daily volumes for retail traders, while for institutional traders the sharp hike in expiry day margins weighed, an analysis by Kotak Institutional Equities noted.
Although Sebi is currently in the process of consultation for putting in another set of rules for derivatives trading, those are unlikely to have much impact on trading volumes, the report said.
“With a large part of retail-focused F&O regulations now in play, we have seen about a 20% drop in retail premium turnover and active retail traders,” the report said. “Proprietary/ institutional trading has seen a slightly higher drop in premium (about 25%), with uncertainty from the potential introduction of new position limit rules (in consultation at this stage). While more immediate measures to tighten the F&O markets seem unlikely, it is unclear deliveries on what metrics are crucial to settle this issue,” it said.
“While volume decline is already evident, any second-order impacts will be visible over the next 6-12 months. Another round of tightening seems a low-probability scenario for now,” it said.
The report also pointed out that the cash market activity had also seen a lull, with declines across metrics such as retail volume (about 25%), active traders (about 20%) and margin loans (about 15%).
Average daily cash volume in the retail segment has dropped to about Rs 30,000 crore from the peak of about Rs 50,000 crore, even as these levels are still higher than previous years. Another measure of activity, that is cash delivery volume, has also come off the peak levels, reflecting weak markets, the Kotak report said.