By Palak Shah
Contrary to the popular perception that India's equity derivatives market is growing, the National Stock Exchange (NSE) has recorded a fall in futures and options (F&O) trading during the current financial year. Also, there has been a fall in the cash segment of the equity market.
Data shows average daily trading volumes fell 13 per cent in the futures segment and 20 per cent in the options segment during 2012-13 so far. Market experts say the fall in volumes is mainly due to the exclusion of 30 per cent of stocks from the derivative segment by NSE. In 2012, the NSE removed 50-70 stocks from the F&O segment as the regulatory criteria were tightened and they did not fit the parameters.
Average daily equity futures volumes stood at Rs 26,714 crore on the NSE during the current financial year so far, compared to Rs 30,734 crore during the previous year. In 2010-11, on an average, equity futures worth Rs 38,789 crore were traded daily on the NSE.
Data shows the average daily equity options volume has been Rs 871 crore on the NSE in the current year so far, compared to Rs 1,095 crore during the previous year. However, options volumes have risen from Rs 170 crore on an average daily basis during 2007-08. But the rise in percentage terms might appear big only due to a lower base.
Market experts say only the worth of options premiums traded has to be considered for calculating the average daily trading volumes for the segment. This is due to the fact that the value of underlying security in options is not traded; it is notional. Cash market volumes on the NSE are down seven per cent this financial year. These were Rs 10,500 crore during the current financial year, compared to Rs 11,200 crore during the previous year.
"The fall in F&O trading volumes may only increase the noise for reduction of statutory costs on equity trading. While removal of stocks from the derivative segment is a key reason for fall in F&O volumes, absence of physical settlement is another reason keeping traders away," said Kishor Ostwal, managing director of Mumbai-based CNI Global Research.
He says a delivery-based settlement system in F&O will also increase the cash market volumes.
|EQUITIES FAIL TO ATTRACT|
|Fiscal||Cash market daily |
|Equity futures daily |
|Equity options daily |
|Non-agricultural commodities futures daily average % |
|Note: Date source NSE. Non-agri futures trading volumes taken from MCX website.|
Derivative data on the Bombay Stock Exchange (BSE) is not comparable as the segment has seen attraction only recently, after the incentive scheme was launched.
On the BSE, the cash market volume is down 17 per cent at Rs 2,207 crore compared to Rs 2,600 crore during the previous year. Stock brokers say it might not be wrong to say equity volumes were moving towards other trading segments like commodities, an argument jointly opposed by all the commodity exchanges.
In fact, the BSE has said in many conferences that commodity trading was eating into the equity pie, as statutory costs were high in the latter segment.
The NSE pays a little over Rs 5,000 crore as annual Securities Transaction Tax and the BSE pays Rs 2,000 crore.
The data shows non-agri commodity futures trading was down 3.8 per cent at Rs 48,000 crore on an average daily basis. However, the volumes have seen a significant jump from 2007, from around Rs 10,000 crore only.
Over the past four years, the average daily non-agri commodity segment trading on the MCX saw a jump of 40 per cent. It was mainly on the back of futures trading in bullion, metal and energy contracts. Prior to 2008, STT was allowed as rebate against tax liability under Section 88E of the Income Tax Act, if the income from securities on which the tax was levied was included under the head profits and gains of business and profession'. This allowed brokers to pay less tax and generate more volumes. The changes to the income tax rule on STT were announced in 2008 by Finance Minister P Chidambaram.